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Does Colonialism Pay?
It's time to revisit the economics of "empire"


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he invasion of Iraq and the prospect of a long occupation have raised anew the question of empire. A similar debate took place 100 years ago in the wake of the Spanish-American War. Although the U.S. officially renounced the goal of being a formal imperial power like France or Britain, in practice it has long been at least quasi-imperialist. The Founding Fathers were generally hostile to the idea of empire. Their own experience as colonial subjects naturally soured them on the idea. They also saw empire as having a corrupting influence on the mother country. In his farewell address, George Washington warned that imperial ambitions lead to “overgrown military establishments” that are “inauspicious to liberty” and “particularly hostile to republican liberty.”

Although American leaders paid homage to Washington’s warning, the westward expansion and continuing growth of America’s population and economic power inevitably put strains on our adherence to the idea of “good faith and justice toward all nations … peace and harmony with all.”

By the late 1800s, there was a spirited debate in the U.S. about whether the nation ought to join the quest for colonies. Many argued that they were necessary in order to create markets for American goods. Arguing against this proposition, Yale economist William Graham Sumner said that colonies were a poor substitute for free trade. “Conquest can do nothing for trade except to remove the political obstacles which the conquered could not, or would not, remove. From this it follows that the only justification for territorial extension is the extension of free and enlightened policies in regard to commerce,” he wrote.

A few years later, the great economist Joseph Schumpeter elaborated Sumner’s point that free trade obviates any benefit to colonialism. Consequently, capitalism was inherently anti-imperialist, he argued. Imperialism, in Schumpeter’s view, was alien to capitalism and not its final stage, as Karl Marx had argued.

Nevertheless, the Spanish-American War left the U.S. an imperial power, acquiring the Philippines, Puerto Rico, and Guam. Almost immediately, the U.S. found itself putting down native resistance in the Philippines in a bloody little conflict similar to that going on in Iraq today. This revived questions about the negative effects of imperialism.

Among those arguing this point was the great political scientist John W. Burgess of Columbia. He pointed out that it is inherently undemocratic to hold colonies. The U.S. must necessarily rule them in an autocratic fashion, which leads to centralized government and militarization at home. “Limited government and the colonial empire system are practically incompatible,” Burgess wrote, “and unlimited government undermines democratic principle continuously and persistently.”

Eventually, the urge to be a colonial power wore off and the U.S. gave the Philippines their independence after World War II. However, Puerto Rico, Guam, the U.S. Virgin Islands, the Northern Marianas Islands, and other territories remain de facto colonies to the present day.

One reason the U.S. maintains its possessions is because it is a good deal for the possessions. They get far more in aid from Washington than they send the other way. Puerto Ricans, for example, do not pay federal income taxes but are still eligible for federal welfare benefits such as food stamps.

This illustrates an important point about colonialism that France and Britain also discovered — it just doesn’t pay. Even admirers of the British Empire, such as economic historian Niall Ferguson, admit this fact. In his recent book, Empire (Basic Books), he notes that Britain put far more into India in the form of public works and military expenses than it ever took out. In Mammon and the Pursuit of Empire (Cambridge University Press), economic historians Lance Davis and Robert Huttenback concluded that Britain lost money on all its colonies. That’s why they were ultimately given their independence.

Iraq is further evidence that colonies are a losing proposition. Even though that nation sits on the second largest proven oil reserves on earth, production is coming back on line very slowly. This is forcing U.S. taxpayers to pay for the reconstruction of Iraq on top of the large and growing costs of occupation. And, of course, the biggest cost is unquantifiable — the 261 American military personnel who have lost their lives in the Iraq conflict.

When asked, President Bush and his advisers disavow any imperial ambitions. “We have no territorial ambitions, we don’t seek an empire,” President Bush has said. But as journalist Robert Merry writes in the latest issue of International Economy Magazine, “History tells us that empires of the past seldom set out to become empires.”

I don’t believe that anyone in the Bush administration consciously desires an American empire, although they are being urged to pursue one by some pundits like William Kristol. But I do think there is a danger that the U.S. will back into imperialism if we aren’t careful. All the old reasons against it are still valid and should be respected.



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