I sent this to Michael Perelman who very kindly formatted it and sent it to pen-l. I now send Michael's copy to OPE-L. Bagchi's book Political economy of underdevelopment (Cambridge) was standard reading material for the introduction to development studies course by UC Berkeley prof and Africa expert Michael Watts. This article seems to update some of the middle chapters of Bagchi's now twenty year old book. rb http://www.epw.org.in/showArticles.php?root=2002&leaf=06&filename=4555&filetype=html EPW Special Article June 08, 2002 The Other Side of Foreign Investment by Imperial Powers Transfer of Surplus from Colonies In the era of the rise of industrial capitalism and its development in western Europe and the USA the transfer of part of the income from the major colonies played a critical part in boosting investment in western Europe and allowing enormous amounts of investment to be directed towards sustenance of the mass migration of Europeans to overseas colonies such as the USA, Canada, Australia, New Zealand or South Africa. However, the size and even the direction of the flow of surpluses have been obscured by the usual methods of calculating the value of foreign trade from the mercantilist era down to the present. The author's recalculation of the surplus extracted by Britain from India and Burma demystifies the astonishment expressed by most commentators about the very large proportion British foreign investemnt formed of its GDP and the apparently perverse desire of the British to retain an empire which was less profitable than, say, investment in the USA. The realisation of the enormous surplus was an integral part of the mechanism by which the white-settled colonies were populated and equipped and therefore could not be treated as a substitute for that process. Amiya Kumar Bagchi Excerpt In the nineteenth century and beyond, British investment in the USA had as its counterpart large trade deficits of Britain with the USA In the balancing acts that supported the British empire, before World War I, Indian exports generated large surpluses with the USA even as India had a nominal and increasing deficit with the UK [Saul 1960]. India sent a large tribute to Britain in the shape of Home Charges (that is, costs of British civil and military establishment in Britain maintained by Indian revenues along with interest on British loans to India all of which was charged to Indian revenues), and British traders, shippers, and insurers realised a profit, going up to 40 per cent of India's external trade (as against the 5 or 4.5 per cent assumed by Imlah 1958): most of that trade was monopolised by European - mainly British - traders [Bagchi 1982: chapter 4; Banerjee 1990]. I have argued elsewhere that much of British investment in India really owed its origin to the reinvestment of profits made by the Europeans in India. While some of those profits originated in new enterprises, the Europeans had privileged access to those resources such as land for plantations, charters for railways, or mining properties which made the enterprises profitable [Bagchi 1972, 1972a]. We have argued earlier that colonial surpluses partly held up some of the material progress achieved in western Europe in the age of merchant capital. In the era of the rise of industrial capitalism and its development in western Europe and the USA also the transfer of part of the income from the major colonies played a critical part in boosting investment in western Europe and allowing enormous amounts of investment to be directed towards sustenance of the mass migration of Europeans to overseas colonies such as the USA, Canada, Australia, New Zealand, or South Africa. However, the size and even the direction of flow of surpluses have been obscured by the usual methods of calculating the value of foreign trade from the mercantile era down to the present. The problem is that the profits realised by the importers, financiers, shippers, or insurers based in the metropolitan country and the tribute exacted by the ruling power as expenses of administration and defence do not figure directly in the trade accounts. Hence the surplus flowing out of the colony is grossly underestimated, even if such a phenomenon is recognised at all. Interestingly enough, some of the metropolitan officials, traders and planters had seen and analysed the problem in the eighteenth and nineteenth centuries [Long 1774; Colebrooke and Lambert 1795, and Mallet 1876, quoted in Bagchi 1989: 71-73], but many of the modern apologists of colonialism [such as Davis and Huttenback 1986] have ignored this phenomenon altogether. The issue is clearly set out by Braudel (1982: 277-78), while describing the relation of St Domingue and other island colonies of France in the tropics in the eighteenth century to Bordeaux, the main French port importing the products of those colonies: The wholesalers, commissioners and shippers of Bordeaux, who obliged the islanders to use the services of their boats, their captains (who often had instructions to sell cargoes for them), their warehouses and their life-saving advance payments, were thus the masters of the machine that turned out the riches of the coloniesSNow all this hardly seems to correspond to the overall statistics of colonial trade. In Bordeaux, where half of all French trade with the colonies was carried on, exports only amounted to a third, later a quarter, later still back to a third, of the imports to Bordeaux of products from St Domingue, Guadeloupe and Martinique. And there is a similar imbalance in the figures for MarseillesS And yet St Domingue, to take only one example, was constantly drained of her piastres: they were smuggled in from nearby Spanish America and did no more pass through the island. The extraordinary truth was that they went straight to Bordeaux - in huge quantities after 1783. In this particular case, the main factor in reconciling the difference between figures of exports from and imports into Bordeaux would be the service charges of loans extended by the merchants or bankers of the port to the islanders.
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