The object of this book is to describe the transformation in the capacity to produce goods and services which took place in England over a period of three centuries between the reigns of Elizabeth I and Victoria, and which is conventionally termed the industrial revolution. At the beginning of the period England was not one of the leading European economies. It was a deeply rural country where agricultural production was largely focused on local self-sufficiency. In part this was a function of the low level of urbanisation at the time. England was one of the least urbanised of European countries: the only large town was London. The market for any agricultural surplus was limited other than close to the capital city. There was therefore little inducement to undertake improvement. Industry was little developed compared with the situation in the more advanced continental countries. Across a wide range of products there was little or no domestic production. When an initiative was taken to create a domestic source of supply, it was often the case that foreign expertise was sought to enhance the chances of success. England was on the periphery of Europe economically as well as geographically. However, although other European economies were well in advance of England in the mid sixteenth century, all were subject to the limits to growth that were common to all organic economies.

The underlying constraint that prevented sustained growth in organic economies arose from the nature of its energy sources. All acts of material production, whether in the field, the forest, the workshop, or the household necessarily involved the expenditure of energy; and the same was true of all types of transport. But the quantum of energy that could be secured for these purposes was limited. It was based almost exclusively on the energy secured by the process of plant photosynthesis. The conversion of raw materials into finished products always involved the expenditure of either mechanical or heat energy, or both. The great bulk of the mechanical energy was provided by human or animal muscle power. This energy came from plant photosynthesis in the form of food or fodder. Wind and water power was of relatively slight importance. Heat energy was secured from burning wood or charcoal.

The demographic characteristics of a society may have an important bearing on its prevailing standard of living and economic growth prospects. This was an issue explored by Hajnal in his remarkable essay on marriage in western and eastern Europe, published in 1965. He was intent on exploring the nature and significance of the west European marriage system. Table 6.1 reproduces the table that appeared on the first page of his essay.

The differences between the two marriage systems are striking. They are especially pronounced in the case of women. In the western pattern, approaching half of the women in the age group 25–29 are unmarried, and this remains true of roughly a sixth of women even in the 45–49 age group. In eastern Europe in both these age groups the proportion of women who had never married was negligible. Hajnal provided evidence that what was true of eastern Europe was true of almost all societies elsewhere in the world for which he had reliable data. The difference in proportions ever married in the two systems clearly implies wide differences in the average age at first marriage. Hajnal noted, for example, that in Serbia, in 1896–1905, the decade centred on the year for which Table 6.1 shows percentages single, the mean age at first marriage for women was 19.7 years. In the west European marriage system the average female age at first marriage, though it varied considerably, was three to eight years later in life.

Hajnal noted that: ‘There was a widespread conviction among eighteenth-century authors that European conditions were fundamentally different not only in marriage, birth and death rates, but above all in standards of living, from those obtaining elsewhere in the world.’ He was, however, very conscious of the lack of empirical evidence to enable the issue to be explored effectively, not least because reliable demographic evidence for earlier centuries was so slender. Since his essay was published much new research on the west European marriage system has been carried out. It has become clear that the system had existed for centuries in some countries rather than being of recent origin, as Hajnal supposed. Even though exponential growth was physically impossible in organic economies, the prevailing standard of living was not foredoomed to be depressed close to bare subsistence for the mass of the population in societies in which the west European marriage system had become established.

In organic economies it was always the case that the size of the urban sector was strongly influenced by the productivity of agriculture. City dwellers needed food and drink no less than those living in the countryside and since they produced little food themselves, they depended upon the existence of a rural surplus. If, for example, the agricultural sector produced 25 per cent more food than would cover the needs of the rural population, the food needs of an urban population that constituted a fifth of the total population could be satisfied. Agricultural productivity set limits to the urban growth that could take place, but agricultural productivity was itself strongly influenced by urban demand. In the absence of a substantial urban sector, in rural areas there was little incentive to produce an output greater than that needed to meet local needs. In other words, agricultural productivity and urban growth might be characterised by either negative or positive feedback. If the urban sector was trivially small and stagnant there would be minimal incentive for increased agricultural output since any surplus over local rural needs would be unable to find a market. If, however, the urban sector was significant and growing it created an incentive to increase agricultural output, thus ensuring that demand and supply remained in balance as urban growth progressed. Positive feedback between urban growth and improved agricultural productivity was always possible in organic economies. If it occurred, however, although the level of urbanisation might increase for a time, matched by an increasing rural surplus, the positive feedback could not continue indefinitely, because of the implications of the fixed supply of land which the classical economists described so effectively.

The scale of urban growth in England and the continent

Perhaps the most striking and important of all the contrasts between England and her continental neighbours in their economic development in the early modern period was in the speed, scale, and nature of the urban growth taking place. It was striking in England but muted to the point of non-existence in most of continental Europe. This in turn, necessarily meant that throughout this period English agriculture was making notable progress, given that the island remained broadly self-sufficient in food production.

The changing balance between primary, secondary, and tertiary employment in early modern England provides a valuable insight into the nature of the changes that were gradually transforming an organic economy into the first example of a completed industrial revolution. In organic economies it was normal for 70–80 per cent of the workforce to be employed on the land, reflecting the fact that labour productivity in agriculture was low. The secondary and tertiary sectors were always dwarfed by the primary sector. Ten peasants might produce enough food for their own families and perhaps two or three other families who were then able to engage in textile manufacture, handicrafts, building, retailing, transport, etc., but the surplus in question was limited and might prove fragile in hard times. For the same reason, the proportion of the population living in towns and cities was always modest. Labour productivity in agriculture was too low to support a large urban sector. Equally, the absence of a large urban demand for food meant that there was little incentive for a peasant farmer to increase his output since there was no guarantee that it would find a market.

Recently new estimates of the changing occupational structure of England in the early modern period have been made. They differ substantially from earlier estimates; they suggest that the rise in the proportion of the workforce in the secondary and tertiary sectors occurred earlier, and was larger than was once supposed. The revised estimates and their implications for the nature and timing of the changes that ultimately brought about an industrial revolution are the subject of this chapter. It should be noted that the estimates normally relate to the male labour force only.

The expansion of the secondary and tertiary sectors

Given the relative income elasticities of demand for the products of the primary, secondary, and tertiary sectors in organic economies, a very high proportion of the labour force engaged in agricultural production normally indicated a modest standard of living and sometimes deep poverty. The bulk of the population, if they engaged in market transactions, spent much of any income at their disposal to obtain food.

The term ‘industrial revolution’ has had a wide currency for many decades. It can be misleading in that the changes taking place were not found solely in industry, nor were they always induced by a prior stimulus brought about through industrial advance. The term is, nonetheless, in all probability, through long usage, here to stay. Perhaps because of the inadequacy and ambivalence of the term ‘industrial revolution’, it has proved difficult to secure agreement on when it should be regarded as having been completed.

If a single, symbolic date is sought to mark the completion of the industrial revolution it might, in my view, be that of the Great Exhibition of 1851. Although the employment of the steam engine as the prime source of mechanical energy was only partially completed at this date, it was already clear that mechanical energy needs no less than heat energy needs could be met by burning coal. Two or three decades were to elapse before virtually all the industries which used mechanical energy on a considerable scale were securing their supply from the steam engine, but it was already clear at the time of the Great Exhibition that this change was under way. The rail network in Britain had already transformed inland transport and was in the process of radically revising the economic geography of the country. Further, the centuries during which there was a marked contrast between developments in England and on the continent had ended. Other countries were quick to realise where the future lay and to ensure that they were not left behind. It became clear that events in England had resulted in a ‘package’ of changes covering all major energy uses that it was both desirable and feasible to adopt elsewhere. Implementing the new ‘package’ involved changes that were largely technical rather than institutional and compatible with a wide range of different political and institutional structures. The ‘package’ was widely taken up in the second half of the nineteenth century, with striking results for the relative economic performance of Britain and her neighbours.

The first edition of Jevons’ The coal question was published in 1865.

Ending the first global economy?

Before 1914, Europe seemed the secure pivot of world trade and multinational business; after that date, global power discernibly shifted. Through two world wars, Europeans left behind an earlier era of peace and rising prosperity, and fought themselves into exhaustion. Their wars within Europe, for much of the nineteenth century, had been comparatively short, and, indeed, after 1871 no one great European power found a reason to fight another. Rival states, from the 1880s onwards, colonized Africa by reaching diplomatic solutions to territorial disputes: no imperial gain there was worth the cost of a major conflict back home. In Asia, the governments of Britain, France, Russia, Germany, the USA and Japan settled disputes over the control of China's ports; meanwhile, Britain, France and the Netherlands gradually divided the lands and resources of South East Asia by reserving military action for the people being colonized. Tibet, Afghanistan and Persia were all dangerous flashpoints, but did not pull Russia and Britain into war with each other; quite the contrary, as the Treaty of 1907 was a breakthrough resolution of their imperial contests, and the agreement over Persia, in particular, secured Britain's oil interests there and safeguarded its trade routes to India.

On the other hand, Russia had fought an economically and militarily emergent Japan in 1904–5, and decisively lost, bringing about the handover of a railway at the heart of South Manchuria's commercial development. Anglo-Russian rapprochement, in turn, facilitated the founding of the Triple Entente – between Britain, France and Russia – which lined up against a Germany that gave support to an Austria-Hungary destabilized by nationalist forces in the Balkans. International tussles over Morocco, Bosnia-Herzegovina and Tunisia – between 1905 and 1911 – issued early warnings of how obscure disputes overseas might threaten the long period of peace. Historians continue to debate the causes of the Great War: nonetheless, while most accept that conflict was hardly inevitable, the dangers of diplomatic miscalculation in a Europe divided by two opposed military blocs were ultimately proven. Every one of the combatants, in 1914, had its own strategic and ideological reasons for escalating a local conflict into a worldwide catastrophe, and, consequently, all of them should receive, if not equal shares, some portion of the blame (Clark, 2012).

Multinationals and empire

How legitimate is it to portray the decades before 1914 as part of the age of globalization? We can quickly discover in the nineteenth century signposts to the ‘modern’ world, including industrialization, urbanization, electrification, motorized transport, and long-distance communication; there existed the rise of democratic (and, more latterly, anti-democratic) popular movements, a strong sense of nation, and armies equipped with deadly technologies; firms that could utilize science and undertake large-scale production; within cities, amongst much poverty, we can trace the origins of mass consumption; and a world that was dependent on flows of international trade and investment and on multinational businesses able to operate across continents.

After the First World War, the economist John Maynard Keynes attacked those victorious nations whose governments, he believed, had imposed peace terms without proper regard for global interdependence. He acknowledged what, before the catastrophe of 1914, had been a remarkable surge in transnational business, meaning that someone living in London could order by telephone the products of the whole earth, and invest in the natural resources to be found all over the world. He viewed the internationalization of social and economic life as ‘nearly complete in practice’, but acknowledged, too, how ‘the projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion…were to play serpent to this paradise’ (Keynes, 1919). Admittedly, the metropolitan figure Keynes described was more typical of his social class than the majority of London's inhabitants, but, during the nineteenth century, international trade and investment grew to have a far-reaching impact on populations throughout the globe.

As well as tracing the origins of the multinational enterprise, we are interested in its dynamism. In what ways was the international economy before 1914 distinct from later periods, and can we talk of a first global economy or International Economy I? As we shall see, multinational enterprises had become an established feature of this international economic system. Inevitably, their effect was not purely commercial, but intimately tied to developments in politics, society and diplomatic affairs. The late nineteenth century is most easily characterized as the era of empire. The scale of imperialism shaped the flow of global trade and investment, as would its later decline.

International business and the historian

Through tracing the rise of the global company, we can observe a major influence on the modern era: few would question the importance of multinational enterprise to the world economy, but multinationals have shaped, too, the politics and societies of individual countries, and the relations and power balance between nations. The bonds between the economic and political are too often downplayed in the accounts of international history, more concerned with states, diplomatic alliances, and wars. Yet European industrialization and rising living standards in the nineteenth century incited the search for raw materials and commodities, trade and investment overseas, and imperial expansion. Cold War divisions and the economic, technological, and military hegemony of the USA shaped the workings of the post-war international economy. With the liberalization of markets and cross-border investment from the late twentieth century onwards, it was multinationals that hastened and transformed the economic interdependence of countries.

While the governments of investing nations supported their firms abroad, host nation governments strove through their policies to gain from these investments, and, in many cases, to protect encroachments on their sovereignty; for multinationals, governments were as much part of the business challenge as trends in the global marketplace. In addition to changing the nature of individual states, the rise of the global company reminds us that national economies did not develop in isolation: cross-border interaction and the transfer of capital, technology, business practices and much else have determined the fortunes of countries and their industries. As a result, multinationals have been both a force for change and dynamism, and a magnet for criticism and concern.

Economists, during the 1960s, fashioned the idea of ‘multinational enterprise’, without realizing how long it had existed as a form of business. Others soon grasped that the giant international corporation, which had become such a prominent feature of the post-war world, had deep origins (Wilkins, 1970; Stopford and Wells, 1972; Stopford, 1974; Franko, 1976). Each revelation remained, nonetheless, a preamble to the main analysis. Why might we move historical study centre stage instead? One suggestion borrows heavily from leading ideas in strategic management and the theory of international business, which view the firm or the multinational as a unique bundle of organizational systems, managerial knowledge, technologies, products and skills.

I began writing this book with a number of objectives. I wanted to offer a comprehensive survey of the development and impact of modern multinational enterprise, from its origins to contemporary times. I hope that the story that emerges will appeal to any reader with an interest in history or world affairs, as well as offering insights for the specialist. I decided on a largely chronological account. There was the solid reason that such an account did not exist for a general history of multinational enterprise, and chronological narrative – describing the sequence of events, and connecting the context and the detail – is a fundamental part of an historian's toolkit. It was always apparent that it would be impossible for one book or one author to cover every aspect of multinational enterprise over the span of 200 years and more. I have focused on showing the major role of multinational enterprises in the events of world or international history. Empires, nation states, government policies, wars, and differences in economic development have been critical to the evolution of multinational enterprise, and to the ability of multinationals to exploit their competitive advantages and to fashion global networks. By the end of the book, I trust the reader will have a clearer notion of the when, where, why and how of multinational enterprises over their long history.

In so far as I have been able to achieve any of my aims, I should acknowledge a number of debts. I have to thank Cambridge University Press, Michael Watson, the History editor, for his many valuable insights and useful advice on everything, from content to structure and language, and my excellent copy-editor, Pat Harper. I received a great deal of help from companies, archives and libraries that answered my enquiries. I am grateful to several anonymous referees, who raised questions of the original proposal and the final manuscript. I owe special thanks, however, to Mira Wilkins for spending so much time reading my manuscript, and I benefited greatly from her analytical precision and acknowledged standards of scholarship.