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Published online by Cambridge University Press: 07 November 2014
A comparison of international capital flows which are occurring today to economically undeveloped areas, with similar international investment in economic development which occurred prior to World War I is almost inevitable and indeed has often been made more or less explicitly. The obvious differences between the two periods lie in the proportion of private capital in the total of international investment in undeveloped areas, and in the pace of economic development then and now. Capital flowing to undeveloped areas today is preponderantly from public bodies: various agencies of the United States Government, the International Bank for Reconstruction and Development, or the United Nations. By contrast, international capital invested in economic development prior to World War I was exclusively from private sources. Then, too, the areas which were developed prior to 1914 experienced within a decade tremendous increases in population of 30 to 50 per cent and increases in the output of their major industries of 200 to 400 per cent. The purpose of this paper is to examine the role of private enterprise and initiative in the international investment in undeveloped areas in the period from 1875 to 1914 and the reasons for the relatively unimportant position of private international capital in economic development today.
1 For example, Report to the President on Foreign Economic Policies (the Gray report, Washington, 1950), 61 Google Scholar: “Traditionally, the important means of financing the net imports of underdeveloped countries has been foreign private investment.” Or, again, a publication of the Department of State (no. 3719), Point Four: “Foreign investment played a significant part in the rapid development of the United States. It can play a decisive part in the accelerated development of other areas. It is important, therefore, that appropriate measures to encourage the international flow of investment capital be developed.…” Or, an address (mimeo.) by R. M. Bissell, Jr., before the National Planning Association, New York, Dec. 3, 1951: “Those areas underdeveloped in 1851 got developed at quite an amazing rate in the 70 years that followed that date. They got developed without the benefit of the kind of public activities I have been concerned with for the last few years.”
2 Data from United Nations, Department of Economic Affairs, International Capital Movements during the Inter-War Period (New York, 1949), 2.Google Scholar
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20 Ibid., 54.
21 For an excellent summary of the sources and data relating to Australian borrowing in this period the reader is referred to Fitzpatrick, B., British Empire in Australia, 1834–1939 (Melbourne, 1941).Google Scholar A complete series of annual balance of payments estimates, including capital imports, 1871 to 1930, is given by Wilson, R. in Capital Imports, and the Terms of Trade (Melbourne, 1931).Google Scholar For the pre-1900 period when the separate states had not yet been confederated, the reader is referred to Coghlan, T. A., Labour and Industry in Australia (Oxford, 1918).Google Scholar
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24 The ease with which colonial governments floated loans, and banks and finance companies sold stock and acquired deposits in London in 1888 and after is partially explained by the Goschen conversion of the British national debt early in 1888, when British 3 per cent securities were compulsorily converted first to 2¾ per cent, then to 2½ per cent consols. By comparison, Australian (also Argentine, Canadian, and United States railroad securities—vide supra, infra) offered attractively high rates.
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34 Computed from International Monetary Fund, International Financial Statistics, 01, 1952.Google Scholar
