Philipp Fink, Agricultural Specialisation in:

Philipp Fink

Late Development in Hungary and Ireland, page 33 - 37

From Rags to Riches?

1. Edition 2009, ISBN print: 978-3-8329-4173-4, ISBN online: 978-3-8452-1720-8

Series: Nomos Universitätsschriften - Politik, vol. 168

Bibliographic information
33 1999: 88).4 The feudal serf economy was based on self-sufficiency and subsistence farming, whereby traditional consumption patterns prevailed. As a result, rural and urban markets were small due to low demand. The continued existence of the guild system additionally monopolised the production of consumption goods and the spread of technological innovation. The room for proto-industrialization was correspondingly narrow. The ensuing lack of demand, markets and hence innovation essentially inhibited the establishment of putting-out industries in rural areas (Berend 2003: 27-30). Consequently, the linkages between rural and urban development were low, creating a negative reciprocal relationship. Peasant self-sufficiency meant that cloth and tools, the hallmarks of cottage industry, were generally not traded. Instead, they were consumed by their peasant producers. The guilds served only the small urban markets with their products. Furthermore, investment in innovation was impeded through a lack of capital. Non-aristocrats were prohibited to buy land. Labour was bound to the land of its landlord (Fischer/Gündish 1999: 96). This hindered the mobility of labour, leading to shortages in manual and qualified labour. The feudal structures prohibited the encumbering of estates, which were additionally indivisible in the event of mortgage redemption. This restricted the availability of sufficient funds for investment in agricultural production as well as for industrial expansion (Berend/Ránki 1974: 15). The consequence was the relative backwardness of Hungarian society and economy. Berend and Ránki (1974: 14) note that in early 19th Century Hungary, “industry stagnated within its guild limitations; the cities retained their medieval appearance”. Low urbanisation further limited the development of agriculture. The primary sector was deprived of expanding urban and rural markets as a potent demand factor. As a result, Hungary retained its traditional rural and agrarian character. In the 1840s, only one in twenty people lived in towns. Only 5% of the population worked in industry, which comprised around 450 “large” works employing 20 to 40 workers and predominately in the field of agricultural processing (milling, sugar refinery, brewing) (Berend/Ránki 1974: 49). 1.1.2 Agricultural Specialisation A further factor, closely related to the process of re-feudalisation, was Hungary’s unequal specialisation in modern trade. Similar to other Eastern European countries, Hungary participated in modern forms of trade at a very early stage. The rise of capitalism in the West led to the substitution of medieval type trade with modern forms of trade. Modern trade developed from the end of the 15th Century and originated from the evolution of commodity production and the social division of labour as a result of economic growth. It provided increasing quantities of mass- 4 Most land and hence economic and political power in the first half of the 19th Century lay in the hands of between 10 and 20 aristocratic families (Fischer/Gündisch 1999: ibid.). 34 consumption goods and industrial raw materials to an enlarging buyers market. By contrast, medieval trade is defined as the traditional long haul trade of spices and luxury articles from the Orient to the European markets (Pach 1994: X 218). The Demise of Trade Hungary originally participated in the rise of modern trade by supplying growing amounts of cattle and copper mostly to southern Germany. In exchange, its main imports were processed textiles (linen and later cotton) and hardware. Eastern Europe featured as the most prominent export market for Western European industrial products, far surpassing the Extra-European colonial markets in the 16th Century. In return, Western Europe’s import requirements (staple foods and agricultural products) were met by its Eastern neighbours. The Hungarian economy greatly benefited from the strong rise in agricultural prices until the end of the 17th Century. However, Hungary experienced a drastic fall in its terms of trade during the following era of depressed agricultural prices (Pach 1994: X 223). This development was symptomatic of Eastern Europe’s fall in its relevance as a market for exports as well as a supplier of agricultural imports to Western Europe. New trade routes, especially Atlantic trade, were of growing importance. Increased agricultural self-sufficiency in the leading European economies reduced the demand for Hungarian products. More importantly, Hungary experienced stagnation in its export capacity.5 Agricultural exports were not only severely affected by the Ottoman conquest, but also Hungarian agriculture was increasingly incapable of producing the desired amounts of cattle for export (Pach 1994: X 261). The following period of depressed agricultural prices illustrated the incapacity of the Hungarian economy to adapt to the lower prices through innovation and to have used the preceding era of high export incomes to develop industrial production. External developments such as the evolution of modern trade cannot be solely made responsible for the deterioration of Hungary’s economic development. Instead, the country’s political, economic and social set-up, i.e. its internal structures, is of more relevance in explaining Hungary’s divergent development compared to other Western European countries. The process of re-feudalisation mentioned above had quickly shown its economic limitations. Higher demand and prices were met only by an increased exploitation of serf labour by the landlords without leading to new investments and innovations (e.g. animal husbandry, crop rotation techniques). The abundance of serf labour and its exemption from all duties and taxes as well as competition through free farmers did not generate sufficient eco- 5 The role of Hungarian copper in the Fugger cities of southern Germany and Holland diminished in the 17th Century, due to the superior quality of Swedish copper and the increased excavation of the central German Mansfeld copper mines. The new Swedish and German mines were more technologically advanced and hence more productive than the underfinanced and antiquated Hungarian mining industry (Pach 1994: X 262). 35 nomic pressure on the landed nobility to induce agricultural innovation (Pach 1994: X 261). Complementary Imperial Incorporation The task of industrialisation and economic development was therefore left to the mercantilist economic policies of the “enlightened absolutionist” Habsburg regime. A distinct core-periphery relationship evolved, illustrating that Hungary became a member of the emerging modern world system, if, however, not displaying modern capitalist structures. As Pach (1994: 308) maintains, Hungary joined the wider Western European market fulfilling its role within the traditional international division of labour as an exporter of “mass-consumption foodstuffs” and as an importer of “mass-consumption manufactures”. A tariff system inhibited the free flow of Hungarian industrial products into the wider imperial economy. Furthermore, although Hungary was not part of the imperial Habsburg common market, it still was shielded from foreign agricultural imports through tariff barriers. However, the underlying nature of the implemented economic policies was more important than the system of discriminatory tariffs against the small amounts of tradable Hungarian manufacturing goods destined for the Hereditary Provinces (Fischer/Gündisch 1999: 83). Habsburg economic policies promoted a division of labour within the Habsburg Empire according to the comparative natural endowments, leading to the industrialisation of the western Hereditary Provinces (Bohemia, Moravia and Austrian provinces). The provinces east of the River Leitha (Hungary, Galicia and Bukovina) specialised in agricultural production. They supplied the imperial centre with agricultural goods in exchange for manufacturing products from the Hereditary Provinces. This division of labour complemented the agricultural income base of the Hungarian aristocracy, thereby ensuring stable and rising incomes for the landed nobility (Berend/Ránki 1974: 15). As a result of this unequal specialisation, the Hereditary Provinces were responsible for more than 85% of industrial production, while the Eastern agricultural provinces were responsible for less than 15% of industrial goods by 1840 (Berend 2001b: 11). A pattern ensued, which was to dominate Hungarian development well into the 20th Century. However, the centre-periphery relationship is not necessarily a one way street. Although the tariff discriminations impeded Hungarian industrialisation, the supplies of Hungarian agricultural products similarly detrimentally affected the agricultural sectors of the Hereditary Provinces (Berend 2003: 29; Berend 2001b: 10). The shift from cattle exports to grain production was made during the Napoleonic Wars. The disruption of economic activity throughout Europe entailed the increase in the economic autarchy of the Habsburg Empire and deepened the economic interdependence of the western and eastern provinces of the Empire. As a result of increased demand for grain from the fast growing industrial Hereditary Provinces, 36 grain production was increased in Hungary, growing by 139% between 1789 and 1841 (Bernd 2003: 148). Furthermore, tentative industrialisation steps via importindustrialisation were undertaken in Hungary during the Napoleonic Wars. However, the feudal structures of the country soon showed their economic limits (Fischer/Gündisch 1999: 95-96). Again the rise in grain production was attained by an increase in the exploitation of serf-labour and in the cultivation of land. Productivity increases were non-existent due to the lack of innovation. It became apparent that agriculture as well as the guild-dominated small industrial sectors were too inefficient and too unproductive to compete on an international basis. The small guild system was incapable of producing consumer goods in sufficient quantity and quality not only due to the customs restriction of the Habsburg Empire, but also due to insufficient economies of scale and technological know-how as a result of low demand and a lack of investment capital. The resumption of European economic activity after 1815 led to a fall in agricultural prices. Hungarian agriculture was severely affected by cheaper grain imports from Russia into the Habsburg Empire. The previous trade pattern of industrial imports soon resumed, displacing inferior Hungarian industrial products. It was apparent that the feudal structures in Hungary were the greatest impediment to economic modernisation. (Fischer/Gündisch 1999: 96). External Imperial Modernisation Following the defeat of the Hungarian independence movement in 1848, Hungary was placed under direct Austrian rule. Direct rule laid the foundations for the Hungarian modernisation process, which was externally induced. The discriminatory tariffs against Hungarian industrial goods were abolished through Hungary’s insertion into the Habsburg customs area. The revolutionary repeal acts of 1848, which finally abolished the general system of feudal entails, were upheld by the Habsburg regime. Vienna, therefore, accepted the tentative revolutionary measures of land reform as well as the legislation ending the indivisibility of agricultural estates and allowing their financial encumbrance. Furthermore, steps were undertaken to dissolve the guilds.6 The main impetus for large scale industrialisation stemmed from substantial infrastructure investments (Berend 2001: 17, 29; Berend/Ránki 1974: 50). 6 The Revolutionary Diet of 1848 passed a land reform, whereby 20% of the peasants were granted plots through compensation by the state and a further 20% were allowed to purchase their land. However, 60% of the peasants were left liberated without any land or at best with unviable plots. Still, the reforms were only tentative, as almost 50% of arable land remained in the possession of the landed nobility (Berend 2003: 110). The Chambers of Commerce and Trade were established as rival organisations in 1850. Guild restrictions were outlawed throughout the Habsburg Empire in 1860, leading to their final abolition in 1872 (Berend/Ránki 1974: 35). 37 Shipping routes were extended on the Danube and the Tisza rivers. Railway construction was also greatly expanded not only in view of security and administrative considerations, but also in line with economic policies. These foresaw Hungary together with the other eastern imperial provinces fulfilling the role of the agricultural hinterland of the imperial core districts. Following the completion of the Vienna-Pest rail line, the Hungarian and Austrian capitals were linked with the agricultural provincial centres and the countries’ main mining areas. The railway network expanded more than tenfold between 1848 and 1866 and created the densest rail network in central Europe (Berend/Ránki 1974: 35). Agricultural production grew by an annual average of 2% between 1800 and 1850, having benefited greatly from the development of transport and the abolition of feudal institutions. However, the Habsburg policies preserved the latifundia system of production. More than 25% of arable land was owned by 600 aristocratic families. A total of 50% of agricultural land remained in the hands of three great aristocratic dynasties (Esterhazy, Prince Schwarzenberg and Prince Lichtenstein). The large estates received vast financial compensations for the liberation of serfs and land concessions, large landowners received more than 17 millions Ft in compensation between 1848 and 1858. These sums together with the eventual development of a modern capital system allowed extensive investments in technology and farming techniques. The role of Hungary as the producer of staple foodstuffs and processed food for the imperial core ensured continued ample incomes and secure markets for the landed nobility, providing demand for 98% of Hungarian agricultural “exports” (Berend 2003: 109-110, 167). Despite these elements of progress, Hungary under direct rule retained its distinct agricultural bias. Agriculture still employed 80% of the population and accounted for 80% of the national income in 1870. In contrast, less than nine percent of the population were employed in industry and almost three percent in transport and trade with only 18% of national income stemming from the industrial sector (Berend/Ránki 1974: 76). It was only towards the end of the 19th Century and the beginning of the 20th Century that Hungary recorded real progress in its quest for modernisation. 1.2 Factors of Irish Underdevelopment In the case of Ireland, industrial development was blocked by two main impediments: deindustrialisation and emigration. Their mutual interaction and their reinforcing effects resulted in a contraction of internal demand and a dependency on agricultural exports. As a result, a specific socioeconomic set-up evolved. Similar to Hungarian experiences, total insertion of Ireland into the British Empire through the Act of the Union (1801) is an important factor in defining the constraints to Irish development. However, imperial insertion is only one of a variety of reinforcing factors influencing the peripheralisation of Ireland and the later Irish Republic.

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Irland und Ungarn verfolgen eine Entwicklungsstrategie, die in bewusster Abhängigkeit von Globalisierungsprozessen in Form von ausländischen Direktinvestitionen steht und sich als Paradigma in der Peripherie durchgesetzt hat. Doch dieser Entwicklungspfad hat zu einer ungleichen und abhängigen Entwicklung geführt. Dies ist laut dem Autor das Resultat des mangelnden Gestaltungswillens beider Staaten, für einen gleichgewichtigen Wachstumsprozess zu sorgen. Die historische Analyse zeigt, dass eine auf ausländische Firmen fußende Entwicklungsstrategie nicht ausreicht, um traditionelle Peripheralität zu überwinden. Der Autor fordert eine Reform des Entwicklungsparadigmas, um eine gleichgewichtige Entwicklung zu ermöglichen.