3. Foreign Investment

No one can regard what his neighbour does as a matter of mere indifference. Everyone is interested in raising the productivity of labour by the widest division of labour possible under given circumstances. I too am injured if some people maintain a state of economic self-sufficiency: for, if they were to relax their isolation, the division of labour could be made even more comprehensive. If the means of production are in the hands of relatively inefficient agents, the damage is universal.

Under Capitalism the profit-seeking of individual entrepreneurs harmonizes the interests of the individual with those of the community. On the one hand, the entrepreneur is always seeking for new markets, and underselling with cheaper and better wares the dearer and inferior products of less rationally organized production. On the other, he is always seeking cheaper and more productive sources of raw materials and opening up more favourable sites for production. This is the true nature of that expansive tendency of Capitalism, which neo-marxian propaganda so completely misrepresents as the ‘Verwertungsstreben des Kapitals’, and so amazingly involves into an explanation of modern Imperialism.

The old colonial policy of Europe was mercantilistic, militaristic, and imperialistic. With the defeat of mercantilism by liberal ideas, the character of colonial policy completely changed. Of the old colonial powers, Spain, Portugal and France had lost the greater part of their former possessions. England, who had become the greatest of the colonial powers, managed her possessions according to the principles of free trade theory. It was not cant for English free traders to speak of England’s vocation to elevate backward people to a state of civilization. England has shown by acts that she has regarded her position in India, in the Crown Colonies, and in the Protectorates, as a general mandatory of European civilization. It is not hypocrisy when English liberals speak of England’s rule in the colonies as being not less useful for the inhabitants and for the rest of the world than it is for England. The mere fact that England preserved Free Trade in India shows that she conceived her colonial policy in a spirit quite different from that of the states who entered, or re-entered the sphere of colonial policy in the last decades of the nineteenth century — France, Germany, the United States, Japan, Belgium and Italy. The wars waged by England during the era of Liberalism to extend her colonial empire and to open up territories which refused to admit foreign trade, laid the foundations of the modern world economy.1  To measure the true significance of these wars one has only to imagine what would have happened if India and China and their hinterland had remained closed to world commerce. Not only each Chinese and each Hindu, but also each European and each American, would be considerably worse off. Were England to lose India to-day, and were that great land, so richly endowed by nature, to sink into anarchy, so that it no longer offered a market for international trade — or no longer offered so large a market — it would be an economic catastrophe of the first order.

Liberalism aims to open all doors closed to trade. But it no way desires to compel people to buy or to sell. Its antagonism is confined to those governments which, by imposing prohibition and other limitations on trade, exclude their subjects from the advantages of taking part in world commerce, and thereby impair the standard of life of all mankind. The Liberal policy has nothing in common with Imperialism. On the contrary, it is designed to overthrow Imperialism and expel it from the sphere of international trade.

A socialist community would have to do the same. It, too, would not be able to allow areas lavishly endowed by nature to be permanently Shut off from international trade, nor Whole nations to refrain from exchange. But here Socialism would encounter a problem which can only be solved under Capitalism — the problem of ownership of capital abroad.

Under Capitalism, as Free Traders would have it, frontiers would be without significance. Trade would flow over them unhindered. They would prohibit neither the movement of the most suitable producers towards immobile means of production, nor the investment of mobile means of production in the most suitable places. Ownership of the means of production would be independent of citizenship. Foreign investment would be as easy as investment at home.

Under Socialism the situation would be different. It would be impossible for a socialist community to possess means of production lying outside its own borders. It could not invest capital abroad even if it would yield a higher product there. A socialist Europe must remain helpless, while a socialist India exploits its resources inefficiently, and thereby brings fewer goods to the world market than it would otherwise have done. New supplies of capital must be utilized under less favourable conditions in Europe, while in India, for want of new capital, more favourable conditions of production are not fully exploited. Thus independent socialist communities existing side by side and exchanging commodities only, would achieve a nonsensical position. Quite apart from other considerations the very fact of their independence would lead to a state of affairs under which productivity would necessarily diminish.

These difficulties could not be overcome so long as independent socialist communities existed side by side. They could only be surmounted by the amalgamation of the separate communities into a unitary socialist state comprehending the whole world.

• 1In judging the English policy for opening up China, people constantly put in the foreground the fact that it was the opium trade which gave the direct, immediate occasion for the outbreak of war complications. But in the wars which the English and French waged against China between 1839 and 1860 the stake was the general freedom of trade and not only the freedom of the opium trade. That from the Free Trade point of view no barriers ought to be put in the way even of the trade in poisons, and that everyone shouid abstain by his own impulse from enjoyments harmful to his organism, is not so base and mean as socialist and anglophobe writers tend to represent. Rosa Luxemburg (Die Akkumulation des Kapitals, Berlin 1913, p. 363 et seq.) reproaches the English and French that it was no heroic act to defeat with European weapons the Chinese, who were provided only with out of date arms. Ought the French and English also to have taken the field only with ancient guns and spears?