Second Industrial Revolution: Global Economic Transformation (1870-1970)

Key Features of the Second Industrial Revolution (1870–1970)

The Second Industrial Revolution (IR II) marked a profound shift, characterized by the deep integration of science and technology between 1870 and 1970. Germany and the United States emerged as pioneers during this era.

Technological and Sectoral Shifts

• Agrarian Revolution (until 1930): Driven by innovations like artificial fertilizers and the combustion engine.
• Metallurgy Progress: Advances in siderometallurgy, including Martin-Siemens furnaces, purified iron impurities. This era also saw the widespread use of aluminum.
• Leading Sectors: Chemistry became a dominant industry, alongside the rapid growth of the automotive sector and modern sales techniques (mail order, advertising, installment plans).
• New Energy Sources: Industrial growth relied heavily on oil and electricity.
• Manufacturing Structure: Characterized by the rise of the large factory, complemented by specialized workshops focusing on non-chain production.

Economic Structures and Policy

To combat the economic crises of 1896–1920, new corporate structures emerged:

• Corporate Consolidation: Mergers, Cartels, Holdings, and Trusts became common.
• Dumping: The practice of selling goods below cost to eliminate competition, allowing the seller to dictate prices later, fundamentally challenged the perfect competition model established during the First Industrial Revolution.

Most states maintained a generally liberal economic approach, intervening only when necessary (e.g., during political instability). However, protectionist measures were increasingly adopted:

• In 1891, economies, particularly the cotton sector, implemented protective tariffs to guard against British dominance.
• Despite industrial growth, most revenues still originated from traditional agriculture.

Infrastructure and Economic Theory

Transport relied heavily on railways, with the introduction of the electric motor enabling faster travel to more remote locations. Industry centralized due to industrialism and required support from mixed banks.

Friedrich List championed economic union and the concept of the nation-market-state, aiming for self-sufficiency and export growth. This involved:

• Replacement Policy: Importing only what could not be produced domestically.
• Commitment Fees (Tariffs): Encouraging domestic improvement and self-sufficiency in key sectors.

National Responses to Industrial Change

The British Retreat

Britain suffered a significant setback starting in the 1870s, losing its industrial supremacy to other nations. Key factors contributing to this decline included:

• Obsolete business models.
• Insufficient funding for large, long-term investments.
• A lack of focus on directing education toward technology and science.
• An enduring obsession with free trade and resistance to ending the traditional division of labor.

Despite these challenges, Britain managed to avoid complete economic collapse primarily through the strength of its service exports and the continued dominance of the London Stock Exchange.

Germany: The Ascendant Power

During the Second Industrial Revolution, Germany, operating under the Second Reich, was a unified federal state. It quickly achieved industrial supremacy.

German economic philosophy embraced social organicism, viewing society as a collection of specialized parts working toward a common goal, with the Kaiser as the head of the state.

Germany utilized the Crisis of 1873 as justification to implement Friedrich List’s system, characterized by:

• Protective barriers.
• Aggressive economic policies aimed at capturing global markets.

The German system was marked by a combination of heavy-handed state control and paternalism. Paradoxically, German workers enjoyed more rights than their counterparts in other nations, despite the strict state oversight.

Japan: Transition from Feudalism

Japan presented a unique case, transitioning rapidly from what was essentially a pre-industrial, feudal society. Key characteristics of its structure included:

• Farmers organized into guilds.
• A hierarchical pyramid structure: The Emperor was the ceremonial head, but the Shogun (military leader) often held significantly more practical power.