International Investment and Colonial Control:A New Interpretation STOR Jeffry A.Frieden International Organization,Volume 48,Issue 4 (Autumn,1994),559-593. Stable URL: http://links.jstor.org/sici?sici=0020-8183%28199423%2948%3A4%3C5593AIIACCA3E2.0.CO3B2-Z Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use,available at http://www.jstor.org/about/terms.html.JSTOR's Terms and Conditions of Use provides,in part,that unless you have obtained prior permission,you may not download an entire issue of a journal or multiple copies of articles,and you may use content in the ISTOR archive only for your personal,non-commercial use. Each copy of any part of a ISTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. International Organization is published by The MIT Press.Please contact the publisher for further permissions regarding the use of this work.Publisher contact information may be obtained at http://www.jstor.org/journals/mitpress.html. International Organization ©1994 The MIT Press JSTOR and the JSTOR logo are trademarks of JSTOR,and are Registered in the U.S.Patent and Trademark Office. For more information on JSTOR contact jstor-info@umich.edu. 2002 JSTOR http://www.jstor.org/ Fri Nov113:53:592002
International investment and colonial control:a new interpretation Jeffry A.Frieden The relationship between international investment and military conflict has long been a theme of scholarly and popular debate.The most famous focus of discussion was the Hobson-Lenin thesis that modern colonial imperialism could be traced to overseas investments by finance capitalists,but there are many variants of the dispute.While these topics appear largely of historical interest,they also raise broad issues in international political economy. Inasmuch as colonialism is a particularly virulent form of interstate conflict (both among potential colonial powers and between colonizer and colonized), explaining it may help shed light on international conflict and cooperation more generally. This article recasts the relationship between international investment and colonialism in a more general context.Putative ties between metropolitan investment and colonial control are one subset of a problem associated with the monitoring and enforcement of property rights across national jurisdictions. Cross-border investment involves an implicit or explicit contract between the host country and the investor.The arrangements developed to monitor and enforce these contracts-from gunboat diplomacy to private negotiations-are varied institutional forms responding to different characteristics of the invest- ments and the environment.Colonialism is a particular,perhaps particularly noxious,form that the "resolution"of these quasi-contractual issues can take: the use of force by a home government to annex the host region and so eliminate the interjurisdictional nature of the dispute I would like to acknowledge the Social Science Research Council's Program in Foreign Policy Studies,the German Marshall Fund,and UCLA's Center for International Relations for supporting the research reported herein.I also thank Fred Halliday,Jack Hirshleifer,Stephen Krasner,David Lake,Peter Lindert,Lisa Martin,John Odell,Robert Powell,Ronald Rogowski, Richard Rosecrance,John Ruggie,Kenneth Thomas,Michael Waldman,and Mira Wilkins for helpful comments and suggestions;and Carlos Juarez and Roland Stephen for research assistance. Intemational Organization 48,4,Autumn 1994,pp.559-93 1994 by The 10 Foundation and the Massachusetts Institute of Technology
560 International Organization This approach leads to two principal dimensions of variation in overseas investments expected to be associated with different levels of interstate conflict and the propensity for such investments to have been involved in colonialism. The first is the ease with which rents accruing to investments can be appropriated by the host country,or protected by the home country,by coercive means.Everything else being equal,the more easily rents are seized, the more likely the use of force by home countries.The second dimension is the difference between the net expected benefits of cooperation among home countries as compared with unilateral action by a single home country.This is a function both of the degree to which interinvestor cooperation facilitates monitoring and enforcing property rights to the investment and of the cost of organizing and sustaining such concerted action by home countries.All else being equal,the lower the net expected benefits of cooperation,the more likely are home countries to engage in unilateral action,including colonialism. Certain types of investments appear to have lent themselves more easily than others to protection by the unilateral use of force by home governments.This is especially true for investments with site-specific and casily appropriated rents, such as raw materials extraction and agriculture.For such investments,colonial control resolved inherent property rights problems that arose in its absence. This is not to say that these investments caused colonialism,for the reverse might have been the case-the greater security colonialism offered might have attracted disproportionate amounts of certain kinds of investments;it is, however,to argue for an affinity between certain cross-border investments and colonialism.I do not claim that these factors exhaust all explanation.Clearly geopolitical,technological,ideological,and other forces were important;but the sorts of differentiated economic variables discussed here often have been neglected in studies of colonialism.Further,their importance appears con- firmed by historical evidence. The first section reviews the long-standing dispute over colonialism and foreignt investment,reshaping it in more general terms.The next section goes on to redefine the analytical issues in the context of property rights and contractual problems inherent in cross-border investment and to explore the implications for the study of colonialism.The third section presents more specific hypotheses about the effects different sorts of overseas investments are expected to have on the attractiveness of colonial control (and vice versa)and about the likely distribution of types of investment among colonial and noncolonial countries.The fourth section examines rudimentary data about the relationship between different types of investment and different forms of rule, while the fifth section brings more qualitative historical evidence to bear on this problem.The final section summarizes the conclusions of this analysis and discusses its implications
Colonialism 561 Colonialism and international investment:the issues Debates over the role of foreign investment in confiict between investing and receiving societies and in conflict among investing countries have a long history.!Early in this century,Marxists and others carried on spirited polemics over the prospects for cooperation and conflict among advanced capitalist states in the context of dramatic increases in international investment and growing international strife (including World War I)that seemed to many to be tied to economically based colonial rivalries.2 The 1930s and 1940s gave rise to new debates over foreign investment and international conflict.3 Indeed,some of the impetus for the Bretton Woods institutions built during the early postwar years came from a desire to avoid problems associated with international investment that were perceived to have contributed to the political turmoil of the first half of the twentieth century.4 Elaborate plans to manage disputes among investing countries became superfluous,as such conflicts practically disappeared over the postwar period.5 Nonetheless,the topic remains interesting and important,for it involves enduring issues in international conflict and speaks to the relationship between international economics and politics. Unfortunately,the analysis of these issues is rife with confusing and often misleading arguments.Proposed explanations (independent variables)typi- cally are poorly specified;in fact,in the most prominent focus of the debate, they are close to meaningless.The things to be explained(dependent variables) similarly are poorly stated.Below,I try to reorganize both the independent and dependent variables to permit clearer analysis. 1.The most important recent contribution to the debate is Charles Lipson,Standing Guard Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (Berkeley:University of California Press,1985).Lipson raises issues similar to those discussed here.Though his explanatory argument differs,it is not contradictory to that presented in this article. 2.Lenin and John Hobson were the two best-known analysts of these problems.Apart from Lenin's pamphlet Imperialism:The Highest Stage of Capitalism (New York:International Publish- ers,1939),a summary of his position is contained in V.I.Lenin,introduction to Imperialism and World Economty by Nikolai Bukharin (New York:International Publishers,1929),pp.9-14.An outstanding survey of Hobson's theoretical position can be found in Peter Cain,"f.A.Hobson, Financial Capitalism,and Imperialism in Late Victorian and Edwardian England,"Joumal of Imperial and Commonwealth History 13 (May 1985),pp.1-27. 3.The two most influential studies were those by Herbert Feis and by Eugene Staley,who looked at previous experiences,especially with European overseas investments,as a guide to potential future arrangements.See Herbert Feis,Europe,the World's Banker 1870-1914 (New Haven,Conn:Yale University Press,1930);and Eugene Staley,War and the Privare Investor (Garden City,N.Y.:Doubleday,Moran,and Co.,1935). 4.On the Bretton Woods negotiations,see Richard N.Gardner,Sterling-Dollar Diplomacy in Cument Perspecrive (New York:Columbia University Press,1980);and Armand Van Dormael, Bretton Woods (New York:Holmes and Meier,1978). 5.Contrarily,such plans simply may have been extraordinarily successful so as to render the issue of conflict obsalete.This possibility does not accord with the widespread impression that Bretton Woods institutions did very little of what they were intended to do,and very little at all until the 1960s
562 International Organization Most controversy over colonialism and foreign investment has to do with the so-called economic theory of imperialism.5 The debate seems peculiar to the student of political economy,for it revolves around the simple question of whether economic considerations were important to colonial imperialism or not.As such it is not about an economic theory as normally understood but rather about the relative importance of the totality of economic concerns and the "contending"totality of noneconomic concerns,even though all scholars agree that both were present.This confusion is compounded by all sides in the debate.Supporters of the "economic approach"point to instances in which nationals of a colonial power made money as a result of colonialism,while opponents call upon examples of colonial possessions devoid of economic significance.If the question were whether colonialism was solely and entirely motivated by expectations of direct and measurable economic profits,this might be appropriate;inasmuch as this is manifestly not the question scholars ask,it is not. In general,an economic theory of political behavior tries to correlate different kinds of economic activity with different kinds of policy or political outcomes.For example,some common economic theories of politics hypoth- esize a relationship between firm and industry characteristics on the one hand and levels of support for trade protection,regulatory outcomes,or other government actions on the other.Typically,an economic explanation is not about the relationship between the economy and politics in general but rather about the relationship of a specific economic independent variable to a specific political or policy dependent variable.It is variation in the economic variable that is purported to explain corresponding variation in the political or policy outcome.If so desired,confrontation with noneconomic theories can then be made by seeing whether noneconomic variables outperform economic vari- ables in explaining outcomes;more commonly,scholars accept that economic and noneconomic factors are not mutually exclusive.Int any case,the appropri- ate test of a typical economic theory is not whether or not economic considerations matter,but whether they matter in the ways hypothesized by the theory in question.An economic theory of colonialism,in this context,would correlate particular kinds of economic activities with the likelihood of colonial rule. It is also useful to get a clearer sense than is usually provided in the debate over colonialism of what is being explained by contending theories.Colonial rule is but one possible outcome of relations between and among countries- 6.Influential statements or surveys of the positions at stake include Benjamin J.Cohen,The Question of Imperialism:The Political Economy of Dominance and Dependence (New York:Basic Books,1973);D.K.Fieldhouse,"Imperialism:An Historiographical Revision,"Economic History Review 14 (December 1961);David Landes,"Some Thoughts on the Nature of Economic Imperialism,"Joural of Economic History 21 (December 1961);and Joseph Schumpeter,"The Sociology of Imperialisms,"in Joseph Schumpeter,Imperialism and Social Classes (New York: Augustus Kelley,1951),pp.3-130