How Nations Succeed Manufacturing, Trade, Industrial Policy, & Economic Development

Murat A. Yülek HOW NATIONS SUCCEED MANUFACTURING, TRADE, INDUSTRIAL POLICY, & ECONOMIC DEVELOPMENT Ketabton.com (c) ketabton.com: The Digital Library How Nations Succeed (c) ketabton.com: The Digital Library Murat A. Yülek How Nations Succeed Manufacturing, Trade, Industrial Policy, and Economic Development (c) ketabton.com: The Digital Library Murat A. Yülek Istanbul Commerce University Istanbul, Turkey ISBN 978-981-13-0567-2 ISBN 978-981-13-0568-9 (eBook) https://doi.org/10.1007/978-981-13-0568-9 Library of Congress Control Number: 2018947747 © The Editor(s) (if applicable) and The Author(s) 2018 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: © grimgram / Getty Images Cover design by Tom Howey Printed on acid-free paper This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore (c) ketabton.com: The Digital Library To my father, who instilled in me the importance of manufacturing, and to my mother, who epitomized hard work, dedication, and selflessness (c) ketabton.com: The Digital Library A NOTE On COnVEnTIOnS USED [] brackets indicate the author’s additions to the text quoted from other sources. Names with year(s) in parenthesis refer to a written work of that person. “ ” are used when sentences from other sources are directly quoted. ‘ ’ are used for emphasis. Dutch states, United Provinces, and the Netherlands have been used interchangeably for practical purposes. British and English, and Britain, Great Britain, and UK have been used interchangeably for practical purposes. vii (c) ketabton.com: The Digital Library AcKnOWLEDGEMEnTS I owe gratitude to many people who directly or indirectly contributed to this book. To name but a few of them: Gülten and Ziya Altunyaldız, Hissam Kamal Hassan, Franco Mosconi, Ömer Faruk Çelebi, Davut Kavranoglu,̆ Nobuyuki Idei, Yusuf Balcı, Ahmet Kazokoglu,̆ Turan Erol, Bülent Arı, Hongyul Han, Mustafa Erdogdu,̆ Kwon Hyung Lee, Ali Akkemik, Sadık Ünay, Nurullah Gür, Ahmet Faruk Aysan, Mehmet Hüseyin Bilgin, Murat Makaracı, Sübidey Togan, Arif Ergin, Orkun Hasekioglu,̆ Orhan Aydın, Ahmet Yücel, Mustafa Özel, Ha Joon Chang, Ihsaṅ Elhan, Kaoru Natsuda, Hüseyin Arslan, Piergiuseppe Fortunato, Halil Sener,̧ Zübeyde Çaglayan-̆ Kın, Bilge Turhan, Cengiz Alacaçı, Gabriel Bezchinsky, Mario Cimoli, Sandrine Labory, Nurullah Gür, Ömer Fatih Irdam,̇ Ömer Faruk Kodalak, Hüseyin Güler, Kunrat Wirasubrata, Murat Yalçıntas,̧ Michael Peneder, Meliksaḩ Utku, Travis Taylor, Diana Barrowclough, Mohammad Yousef, Alpaslan Girayalp, Alan Deardorff, Mehmet Tursak,̧ Bilal Tek, Hacı Ali Özen, Çagatay̆ Emrah Öngüt, and Abdülkadir Karakelle. I have benefited from the works of science historian Fuat Sezgin and from discussions with the late James Tobin. Special thanks to Lorna Girayalp for editing; Hissam Kamal Hassan, Peter Klempner, and Shirley Lambert also assisted with editing parts of the book. Ibrahim Altuncu helped with the cover design. I am also grateful to Selçuk Dinç, Cansu Saraç, Mustafa Resiţ Bulut, and Kadriye Bas ̧ for their editorial, graphics, and data assistance. ix (c) ketabton.com: The Digital Library x ACKNOWLEDGEMENTS I have benefited from participation and presentations in conferences and symposia such as Trade and Sustainable Development Symposium (TSDS), as well as my from residence, consultancy tenures, and presentations at various institutions, including United Nations Conference on Trade and Development (UNCTAD), Scientific and Technological Research Council of Turkey (TÜBİTAK), APU Ritsumeikan University, Istanbul Commerce University, Yale University, Georgetown University, Korea Institute for International Economic Policy (KIEP), Ankara Center for Thought and Research (ADAM), Universitá degli Studi di Parma, and the European Investment Bank. (c) ketabton.com: The Digital Library COnTEnTS Part I Industrialization Was Never an Accident: Colonialization, Monopolized Trade, and Industrialization 1 1 The Old World Order: Trade Before the Empires on which the Sun Never Set 5 1.1 Eurasian Trade: Reverse Flows of Merchandise from Asia Versus Gold from Europe 5 1.2 Economics and Commerce in Medieval Europe Prior to European Geographical Explorations 7 1.3 The Silk Road and the Spice Route in Medieval Times: The Mediterranean as Part of Global Trade 7 1.4 Venice Reaches the Zenith of Power in the Mediterranean 9 References 12 2 The Pre-Industrial New World Order: Colonial Empires on Which the Sun Never Set 13 2.1 Winners, Losers, and Definite Losers of the New World Order 13 2.2 For Spices and Christians: Portuguese Trade Deficit and Colonization 15 Portugal’s Global Expansion 16 2.3 Spanish Expansion into the Americas 19 2.4 The Colonizer of the New Age: Britain’s Ascendance to a Global Power 21 xi (c) ketabton.com: The Digital Library xii Contents Britain’s Merchant Adventurers: Pioneers of British Global Expansion 21 The First Phase of English Global Expansion: Colonization of North America 23 The Joint Stock Company, the Crown’s Charter, and the Colonies 25 The Second Phase of British Global Expansion: The British East India Company and the Colonization of India 27 The Dutch: England’s Friend and Also Foe in the Quest for Domination of Global Trade in the Seventeenth Century 31 The Simple Economics of the British Colonies in America 34 References 37 3 British Colonial Empire and Industrial Policy: Protection, Monopolized Trade, and Industrialization 39 3.1 Britain’s Trade Prior to the Industrial Revolution 40 3.2 The Industrial Revolution and the Expansion of Trade in the Eighteenth Century 43 3.3 British Industrial Policies as the Driver of British Industrialization 45 Inviting Textile Masters to Britain: Learning and Technology Transfer Before the Industrial Revolution 47 Import Substitution and Infant Industry in the Fourteenth Century: Shifting England’s Exports from Raw Wool to Textiles 49 British Navigation Acts: Development of British Shipping and Shipbuilding Industries 51 Monopolizing the International Trade of Colonies: Running Current Account Surpluses by Prohibiting Manufacturing in the Colonies 52 The Triangular Trade 54 3.4 India Before and After British Invasion 55 Manufacturing ‘Good’ Indians 58 3.5 The Story of Cotton: Slaves, India, and British Industrial Revolution 60 Banning Imports of Efficient Indian Cotton Textiles 61 Turning Britain into a Cotton Textiles Manufacturer 62 USA Becomes the Source of Raw Cotton 63 (c) ketabton.com: The Digital Library Contents xiii Cotton: The Critical Commodity 64 Cotton and Slavery 66 3.6 Free Trade Agreements, Free Trade of Opium, and the Collapse of China 67 Britain Extends Beyond India 67 China and Britain 68 References 76 4 How Industrialized Nations Industrialized 79 4.1 Hats, Tea, and Liberty: The American Quest for Manufacturing 79 What the Colonial Laws Meant for the Colony 80 Bad Finance at Home, Bad Taxes in the Colonies 81 Founding Fathers of American Manufacturing and the USA 82 4.2 Japan’s Industrial Policy and Late Industrialization in the Nineteenth Century 84 Frightening Black Ships in Edo 85 The Unfair Treaties 86 The Coal … 88 Japanese Industrialization in the Meiji Period 88 Industrial Policies in the Meiji Period 90 Japan as an Industrialized Nation 93 4.3 French Way of Picking the Winners: Colbert’s Industrial Policies in the Seventeenth Century 94 Making France a Textile and Glass Country 96 Educational Reforms 98 France as an Industrialized Nation 98 4.4 Germany: Another Late Industrializer 99 Economic Unification, Patriotism, and Industrialization 100 Germany as an Industrialized Nation 102 4.5 Beginning of Russian Industrialization: Peter the Great’s Great Technology Transfer Story in the Eighteenth Century 102 Peter’s Crusade for Inward Technology Transfer 104 Russia as an Industrialized Nation 104 References 106 (c) ketabton.com: The Digital Library xiv Contents Part II Manufacturing 109 5 The ‘Why’ of Manufacturing 111 5.1 The ‘Fall’ of Manufacturing 112 5.2 Is Manufacturing a Poor Man’s Business? 114 5.3 World Trade and Manufactures: What Do Rich and Poor Countries Export? 117 5.4 Manufacturing and Growth 123 5.5 Linkages of the Manufacturing Industry 126 5.6 Why Then Does the Share of Manufacturing in Output Falls as Economies Grow? 129 5.7 The Smile Curve

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