Sapiens: A Brief History of Humankind

The most notorious example of how governments did the bidding of big money was the First Opium War, fought between Britain and China (1840–42). In the first half of the nineteenth century, the British East India Company and sundry British business people made fortunes by exporting drugs, particularly opium, to China. Millions of Chinese became addicts, debilitating the country both economically and socially. In the late 1830s the Chinese government issued a ban on drug trafficking, but British drug merchants simply ignored the law. Chinese authorities began to confiscate and destroy drug cargos. The drug cartels had close connections in Westminster and Downing Street – many MPs and Cabinet ministers in fact held stock in the drug companies – so they pressured the government to take action.

In 1840 Britain duly declared war on China in the name of ‘free trade’. It was a walkover. The overconfident Chinese were no match for Britain’s new wonder weapons – steamboats, heavy artillery, rockets and rapid-fire rifles. Under the subsequent peace treaty, China agreed not to constrain the activities of British drug merchants and to compensate them for damages inflicted by the Chinese police. Furthermore, the British demanded and received control of Hong Kong, which they proceeded to use as a secure base for drug trafficking (Hong Kong remained in British hands until 1997). In the late nineteenth century, about 40 million Chinese, a tenth of the country’s population, were opium addicts.³

Egypt, too, learned to respect the long arm of British capitalism. During the nineteenth century, French and British investors lent huge sums to the rulers of Egypt, first in order to finance the Suez Canal project, and later to fund far less successful enterprises. Egyptian debt swelled, and European creditors increasingly meddled in Egyptian affairs. In 1881 Egyptian nationalists had had enough and rebelled. They declared a unilateral abrogation of all foreign debt. Queen Victoria was not amused. A year later she dispatched her army and navy to the Nile and Egypt remained a British protectorate until after World War Two.

These were hardly the only wars fought in the interests of investors. In fact, war itself could become a commodity, just like opium. In 1821 the Greeks rebelled against the Ottoman Empire. The uprising aroused great sympathy in liberal and romantic circles in Britain – Lord Byron, the poet, even went to Greece to fight alongside the insurgents. But London financiers saw an opportunity as well. They proposed to the rebel leaders the issue of tradable Greek Rebellion Bonds on the London stock exchange. The Greeks would promise to repay the bonds, plus interest, if and when they won their independence. Private investors bought bonds to make a profit, or out of sympathy for the Greek cause, or both. The value of Greek Rebellion Bonds rose and fell on the London stock exchange in tempo with military successes and failures on the battlefields of Hellas. The Turks gradually gained the upper hand. With a rebel defeat imminent, the bondholders faced the prospect of losing their trousers. The bondholders’ interest was the national interest, so the British organised an international fleet that, in 1827, sank the main Ottoman flotilla in the Battle of Navarino. After centuries of subjugation, Greece was finally free. But freedom came with a huge debt that the new country had no way of repaying. The Greek economy was mortgaged to British creditors for decades to come.

The bear hug between capital and politics has had far-reaching implications for the credit market. The amount of credit in an economy is determined not only by purely economic factors such as the discovery of a new oil field or the invention of a new machine, but also by political events such as regime changes or more ambitious foreign policies. After the Battle of Navarino, British capitalists were more willing to invest their money in risky overseas deals. They had seen that if a foreign debtor refused to repay loans, Her Majesty’s army would get their money back.

This is why today a country’s credit rating is far more important to its economic well-being than are its natural resources. Credit ratings indicate the probability that a country will pay its debts. In addition to purely economic data, they take into account political, social and even cultural factors. An oil-rich country cursed with a despotic government, endemic warfare and a corrupt judicial system will usually receive a low credit rating. As a result, it is likely to remain relatively poor since it will not be able to raise the necessary capital to make the most of its oil bounty. A country devoid of natural resources, but which enjoys peace, a fair judicial system and a free government is likely to receive a high credit rating. As such, it may be able to raise enough cheap capital to support a good education system and foster a flourishing high-tech industry.

The Cult of the Free Market