Mediterranean and Black Sea Freight Rates and Greek Economic

Mediterranean and Black Sea Freight Rates and Greek Economic

Services and Economic Growth: Estimating Shipping Income in the 19th Century Greek Economy Gelina Harlaftis and George Kostelenos The importance of the services sector, and particularly shipping, in the late colonial and early independent United States economy, has been indicated many years ago; while most recently it has been shown that the United States overtook Britain in productivity levels mainly due to the trends in services rather than the trends in industry1. In nineteenth century Greece ocean shipping determined the economic development of the country and made up a large part of the economy (as much as half of the country’s GDP in some years of the earlier part of the period and one fifth for the total period 1835-1914) and a much larger part of the hard to identify with precision progressive portions of the economy that led the transformation to modern growth. Furthermore, the rapid adoption of steam shipping in the final quarter of the century was one of the most striking and rapid adoptions of new technology2. The service sectors tend to be overlooked, at least in part, because their outputs are often much harder to quantify than the output of commodity producing sectors. This paper presents detailed estimates of the earnings of the Greek merchant shipping fleet from independence in the 1830s to the First World War and puts those earnings into the context of recent estimates of Greek national income during this period. It was following the sea-routes of British economic expansion that Greeks got involved in international sea-transport business during the nineteenth century; it was following the sea-routes of American economic expansion that Greek-owned shipping reached its apogee in the second half of the twentieth century. In their close *- This research has partly taken place within the research project “Greek Economic History, 19th-20th centuries”, led by Th. Kalafatis and E. Prontzas in the P.I.O.P. (Cultural Foundation of Piraeus Group), 2005-2006. 1 Douglass North was the first to indicate the importance of ocean shipping in the United States Balance of Payments, in North “The United States Balance of Payments, 1790-1860”; also his “Sources of Productivity Change in Ocean Shipping, 1600-1850”,. On this line of thought see also Shepherd and Walton, Shipping, Maritime Trade and the Economic Development of Colonial North America. For a recent study see Broadberry and Ghosal, “From the Counting House to the Modern Office”. 2 Harley, “The shift from sailing ships to steamships, 1850-1890; Harley, “Ocean Freight Rates and Productivity, 1740-1913”. Page -1- collaboration with the economies of world economic powers lie some of the reasons as to why Greeks, members of a small European country of about ten million people own, during the last thirty years to the present day, the world’s largest fleet3. Greek economic excellence in the international arena is linked with the sea. Aristotle Onassis represents the Greeks’ success in world shipping and is usually regarded as post-War II phenomenon, a clear case of a “rags-to-riches” success story4. Almost all analyses of Greek shipping tycoons and of the post-World War II Greek shipping “miracle” disregard the long continuity of a business in which Greeks developed remarkable entrepreneurship and expertise at least over the last three centuries5. The merchant fleet owned by Greeks was based on commercial and maritime networks that were formed in the late 18th century and were consolidated in the Mediterranean and northern Europe by the formation of the independent Greek state6. It became an international tramp7 fleet engaged in the cross-trades carrying bulky, cheap cargoes and meeting the demand for transport in an increasingly integrated international economy. In the nineteenth century the main offices of Greek Diaspora trading and shipping companies were found from Odessa to London, from Istanbul to Marseille; the close relations between the big Greek Diaspora trading houses and the Greek shipping companies based on the islands of the Aegean and Ionian seas proved fundamental for the success of this “production system”8. The spectacular growth of Black Sea grain exports compensated the decline of freight rates, that were kept at a reasonably high level during the heyday of the sailing ship era up to the 1870s, and caused the great leap forward by the Greek-owned fleet, providing the necessary capital for the transition from sail to steam which was completed at the turn of the 20th century (Figure 5)9. 3 See Harlaftis, Greek Shipowners and Greece, 1945-1975; Harlaftis A History of Greek-owned Shipping . 4 Harlaftis, «Aristotle Onassis”; Harlaftis and Theotokas, Eupompe. Greek Shipping Companies. 5 Ibid. See also, Harlaftis, “From Diaspora Traders to Shipping Tycoons: the Vagliano bros”, Business History Review, forthcoming; Harlaftis and Theotokas, “European family firms”; Harlaftis and Theotokas, “Maritime business”. 6 Harlaftis, A History of Greek-owned Shipping, chapters 2 and 3. 7 Before the 1870s the shipping market was unified. By the last third of the 19th century the distinction of the shipping market into two categories, liner and tramp shipping was gradually adopted. Liner ships carried general cargoes (finished or semi-finished manufactured goods) and tramp ships carried bulk cargoes (coal, ore, grain, fertilizers, etc.). 8 See, Gelina Harlaftis, “From Diaspora Traders to Shipping Tycoons”; the “production system” based on the analysis of Casson, Enterprise and Competitiveness, p. 7. 9 Harlaftis and Kardasis, «International bulk trade and shipping”. Page -2- In 1850, just twenty years after its formation, Greece, a young and definitely underdeveloped state, owned a fleet almost equivalent to that of Holland and Norway10. In 1880, the Greek fleet could not be compared with those of Great Britain, Norway, Italy, France, and the German Empire but could easily compare with those of Russia, Sweden and Spain and was larger than those of Denmark, Holland, Austria- Hungary and Portugal. In 1910 Greece was in the ninth place of European shipping, which at the time was equivalent to being in the ninth place of world shipping. It may be even more important to note that the Greek owned fleet consisted almost exclusively of ocean-going cargo vessels for the transportation of bulk cargoes, which were international cross-traders, chartered on demand. As was the case in the first half of the nineteenth century for the U.S. economy, so it was with the nineteenth century Greek economy: the major invisible item in the service sector was shipping earnings11. This was also the case for the main maritime nation of the 19th century, Britain; in a paper read in 1882, Sir Robert Giffen, a member of the Royal Statistical Society, was among the first to recognise their importance in the context of the national accounts publicly: “imports and exports of merchandise are only a part of the whole account between nations, that other very important items enter into the account, one of which is the earnings of the shipping fleet of England, the cost incurred in getting these earnings being in truth quite in the nature of an export as far as the question of the balance of trade is concerned”12. Overall.the service sector earnings are difficult to estimate but, of the various relevant sub-sectors transportation is probably the easiest to do so13. 10 Compare the Greek fleet with the main European fleets as found in Kirkaldy, British Shipping. Appendix XVII. The data are based on Progress of Merchant Shipping in the United Kingdom and Principal Maritime Countries, Cd 6180, 1912. 11 North, “The United States Balance of Payments, 1790-1860” p. 575-76. Shipping earnings’ estimations require particular knowledge of shipping and are rather time-consuming and difficult to calculate. In the above paper Douglass North has provided detailed and refined calculations of shipping earnings for his estimate of US early national income in his “The United States Balance of Payments. 12 Cited from Isserlis, “Tramp Shipping Cargoes and Freights”, p. 64. For British shipping earnings in the 19th century see the rather primitive estimate of Imlah in Economic Elements in the Pax Britannica. The importance of shipping in the British economy and the great difficulty of calculating shipping earnings made the Board of Trade to undertake to publish some initial statistics in 1904. This work was continued much more effectively by the British Chamber of Shipping in order to estimate the contribution of shipping to the balance of payments the “invisible exports” of the United Kingdom during the interwar years. It was Leon Isserlis, a statistician of the Chamber of Shipping, in the above mentioned classical paper who has provided the first detailed calculations of shipping earnings for the interwar period; his work was continued for the immediate post-World War period by his successor M.G. Kendall in his “The U.K. Mercantile Marine and its Contribution to the Balance of Payments”. 13 In Β.R. Mitchell for example, British Historical Statistics, pp. 529-569 although there are railway operating statistics during the period 1838-1980, there is no such evidence for shipping. Page -3- This paper combines data on freight rates, the size of the Greek merchant fleet and knowledge of the utilization rate of that fleet to calculate earnings. This provides a good approximation of the true magnitude of these earnings. Much of this paper presents details of the estimation procedure. The relative backwardness of quantitative work regarding the economic history of Greece has resulted in no direct estimates of the income originating in the shipping activity having been made up to now14. The paper also discusses the results in a national income context. When compared with non-agricultural income, shipping earnings clearly indicate that shipping proved to be the “progressive” industry of the Greek economy.

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