Braudel’s Corollary: Off-Shore Powers and Centered Realism

Fernand Braudel said in his characteristically rhetorical style: “was not the European balance of power a sort of political response by the world-economy?”[1] Indeed, even though the modern capitalist world-economy has always been centered at a leading city – and a strong state can always be found at the center – it is not a world-empire; in the sense that the Roman system was a world-empire. But what distinguishes a world-economy from a world-empire is not merely the absence of political centralization.

A world-economy is characterized by an organic unity with a distinct hierarchy of zones: the vast periphery sits in subordination to the core. There is a division of labor “which became established progressively as a chain of subordinations” in a way that is strictly path-dependent. Moreover, the hierarchy is not merely horizontal, there is a distinct vertical structure: above the vast reality of material life sits the market economy with its everyday routines of supply and demand, and over and above this market economy – subjecting it to a degree of rationalization – we find the ‘anti-market’, the real home of capitalism. [Read A Natural History of Capitalism for a more fleshed out version.]

Furthermore, even though Braudel calls the leading city ‘a central control tower’, this should not be confused with centralization of decision-making: a world-economy is not a command economy. In a capitalist world-economy, allocative decision-making is diffuse and decidedly not subjected to the control of a centralized authority: the strong states at the center merely exercise some degree of regulation. For instance, US policymakers themselves have to practice ‘stock market diplomacy’: every one – including the US state – is subjected to the ‘virtual senate’ of the market. The organizing principle of the juridico-political system of the capitalist world-economy is, after all, the right to private property: investor rights became enshrined in the core states at the beginning of capitalism in the Italian city-states, and emanated outward as the European world-economy spread its ‘octopus grip’ over the globe. More often than not, these had to be enforced by police actions by the strong core states at the periphery. But we are getting ahead of the story.

Not being subjected to central control of a single authority, the un-administered world-economy evolves under its own rhythms. We may note here the self-similar Brownian motion of the high-frequency market, the almost comprehensible intra-day movements of stock prices, the peculiar hard and soft cycle of the reinsurance industry, the speculative boom and bust cycles in asset markets, the general business cycle; and perhaps even the more speculative ones: Kitchin inventory cycle, the Juglar fixed investment cycle, the Kondratieff and so on and so forth. For obvious reasons, the most important one for structural analysis is the long-term trend. It is this long-term trend that determines the structural transformations of the world-economy.

The purpose of this monograph is to connect the dots between the structure of the world-economy on the one hand and the balance of power on the other. Only then, will we be able to explore Braudel’s corollary.

The reign of Italian merchants

The Italian city-states comprised an isolated balance of power system for more than a hundred years. Initially, Genoa had a commercial advantage over Venice. Genoese capitalism was more advanced, and the Genoese merchants were already running the Champagne fairs in the thirteenth century. Venice gained the upper hand because of her more privileged geostrategic position. Protected by the Adriatic – especially after she captured Corfu at the mouth of the sea – she was much more secure than Genoa which was permanently exposed to naval attack. This would not be the last time that a hegemonic struggle was secured on the strength of a natural geopolitical advantage. The balance of power between the Italian city-states operated as an almost textbook illustration of neorealism: Machiavelli, the first modern theorist of realism, was a Florentine diplomat and military strategist.

At the beginning of the sixteenth century, the balance of power system of the Italian city-states was overlaid by bigger powers from outside. The French and Spanish monarchs fought it out to control the rich Italian city-states. During this violent interlude, the center of European trade and finance shifted to Antwerp. But this was a precarious equilibrium. By the middle of the century, Spain had emerged victorious in the Italian wars, and now the much more advanced Italian merchants were back in action. The late sixteenth century – the period of Spanish high imperialism – constitutes an early period of unipolarity. Although it is difficult to pin down the exact balance of forces, this was certainly a period of Spanish naval primacy, and the Western Mediterranean was under Spanish hegemony.

The political response of capitalism was to simply adapt to this new state of affairs: Genoa became Spain’s junior geopolitical ally. The Great bankers of Genoa migrated to the Iberian peninsula from where they presided over the European world-economy: “For three-quarters of a century, ‘the Genoese experience’ enabled the merchant-bankers of Genoa, through their handling of capital and credit, to call the tune of European payments and transactions. This is worth studying in itself, for it must surely have been the most extraordinary example of convergence and concentration the European world-economy had yet witnessed, as it re-oriented itself around an almost invisible focus. For the focal point of the whole system was not even the city of Genoa itself, but a handful of banker-financiers.” [Read The Age of the Genoese for a more detailed look at this remarkable episode.]

Dutch primacy

When the Spanish court declared bankruptcy in 1627, the Great bankers of Genoa put into effect a radical and wholesale redistribution of their financial commitments. The Portuguese took over the finances of the King of Spain, but they were fronting for northern merchant-financiers. The Dutch merchants had gained control of the Baltic trade during the course of the sixteenth century. This was a highly profitable bulk trade which they cornered due to a series of innovations in shipping. Their freight rates were already the lowest of the maritime powers.

The period of Dutch hegemony is a remarkable one. The United Provinces was a minor great power. Since the balance of power is primarily determined by land-based military power – and the Hague had the smallest standing army on the continent – it is remarkable that it maintained its status as the centre of the world-economy for over a hundred years. If there were any doubts about the primacy of sea power in the functioning of the iron law of capitalism – the nexus of capital and military power – this should dissipate them. The Dutch primacy in world trade and finance was maintained not just because the Dutch were more innovative, productive, and efficient: they could not have maintained their primacy if they had not enjoyed command of the seas.

On this point one must strongly disagree with Jonathan Israel. As he documents extensively in Dutch Primacy in World Trade, the Dutch faced down military challenges from every single one of their major trading rivals one after another. The Republic fought off Spanish efforts to subdue to the low countries in the Eighty Years War, finally kicking out the Spanish imperialists in the middle of the century. Since 1590, they had already been consolidating their control over major trade routes. In the middle of the seventeenth century, as soon as the Peace of Westphalia (1648) came into effect, Dutch primacy in world trade reached its early zenith. At this point, the Dutch had already established firm control over the lucrative trade in fine spices from South East Asia. They further consolidated their supremacy over the Baltic routes – the ‘mother trade’ where they had made their bones – began to dominate the trade with the Levant, and even gained a significant share of the triangular trade across the Atlantic.

Dutch sea power was, by necessity, the principal tool of expansion. They established naval bases in the Ottoman Near East, the West Indies, West Africa, Southern India, Ceylon, and all over the East Indies. Their principal maritime rival was England. The jealousy of English traders knew no bounds. At first, the English wanted a political union with the United Provinces, in which England would be the dominant partner. A high commission was dispatched in 1651, but it was rebuffed by the States General who preferred an economic union where the Dutch would have the upper hand. The English mission left in anger that summer, and Parliament almost immediately passed the first Navigation Act. Under the new law, it was only permitted to import commodities into England either in English ships or from the country of origin. This was a direct assault on the entrepôt trade monopolized by the Dutch. War was inevitable.

Israel claims that “England was considerably superior in fire-power, thanks to her naval build-up over preceding years.” [2] This is a significant misunderstanding of the true balance of forces. The larger number of guns and ships under the command of the English navy was in fact a sign of their backwardness in sea power: just as today the size of Chinese and Indian armies – both considerably larger than that of the United States – are a sign of their technological inferiority. In fact, the English themselves had been recruiting Dutch sea men and ship-builders to modernize their fleet.

Don’t get me wrong, the English were serious rivals of the Dutch. The population of England at mid-century was 5 million, which that of the United Provinces was 2 million. England had an area of 130 thousand square kilometers of highly productive land, the United Provinces had a territory of around thirty thousand square kilometers of swamps. Both were vigorous maritime powers. How is it then that the Dutch defeated the English in all three of the Anglo-Dutch wars of the late sixteenth century, as Israel himself concedes, somehow baffled?

I do not want to go into the details of all the Anglo-Dutch wars. The crucial point is that military power in the modern world, including and especially, sea-based power, depends on a highly complicated edifice of skills, connections, resources, and advantages acquired over a long period of time. The Dutch were masters of the sea. They built better ships and ran them better than any one else. They controlled key routes, managing to shut of the English from the Levant, the East Indies, in fact, every where else except the Channel. They had more financial resources than perhaps the rest of the continent combined. Their populace – very much due to “highly skilled immigration” from all over Europe – was more productive and more efficient than that of their much bigger rivals. In the third war, they defeated the combined might of England and France.

France was the biggest land-based military power at this time. Even if the Dutch could handle the English at sea, they were almost helpless against the mighty French army. It was precisely at this point, that the mechanics of the balance of power kicked into gear. Spain and Austria entered the war against France – the usual response of great powers to the threat of a regional hegemon – and the Republic was saved from the land-based threat posed by France.

The Dutch navy was itself grounded, but Dutch sea power was deployed with devastating effect anyway. Dutch privateers “hunted in packs off the east coast of England, in the Channel, around the coasts of France and Spain, in the Mediterranean, and in Caribbean and North American waters. Everywhere the losses were heavy.” The official navy was finally sent out when Denmark joined in the struggle against Sweden, and a combined Danish-Dutch fleet crushed the Swedish fleet in 1676.

This war, which lasted from 1672-78 and is usually called the ‘Dutch war’, is thought of as having established France as the dominant military power on the continent. That is the wrong way to think of it. First of all, it was a system-wide conflict. Every great power fought in this war. France’s bid for hegemony was defeated. England retired early in 1674, after losing seven hundred ships, and without gaining any advantages. The Republic “survived politically and militarily, and with its entrepôt, shipping, and colonies intact.” This is “remarkable” to Israel only because he misunderstands the true balance of forces in late seventeenth century world-economy.

Alfred Thayer Mahan, the great American strategist, argued that it was sea power that allowed great nations throughout history to become hegemons[3]. He went too far in arguing that naval supremacy could offer decisive advantages in the balance of power. This is true only if one is talking about off-shore powers. Which brings us to the heart of the matter.

Dutch hegemony, despite Dutch primacy at sea, was tenuous. The threat from land was always present. There was always the potential that a continental great power might conquer the Republic. Usually, the physics of the balance of power operated to the advantage of the Dutch. Germany did not yet exist, and Austria was too far, but France was right next door. At a moment when the balance broke down – say due to a crisis in a major pole of the system – Dutch independence would be in jeopardy. Fortunately for the Dutch, this did not happen but there were close calls. In the War of the Spanish Succession – when the dying heir-less Hapsburg monarch left the Spanish throne to the heir apparent of the French throne, thereby creating the dreadful prospect of a joint French and Spanish empire – the English joined the Dutch and the rest of the continental powers in checking French ambition.

Off-shore powers

Dutch primacy was thus based on a precarious balance of forces on the continent. If the Dutch Republic had been located off-shore, the “stopping power of water” would’ve provided a considerable quantum of security. The reason for this is simple. It is basically impossible for a great power to successfully conduct a sea-borne invasion of a territory well-defended by another great power. The only example in history, the Normandy landings, reinforce this law: “Imagine the Normandy invasion against a Wehrmacht that controlled the skies above France and was not at war with the Soviet Union: the Allies would not have dared invade.”[4]

Off-shore powers enjoy other advantages over continental powers. Being off-shore, they do not have neighbours who are constantly threatened by them, and who seek alliances to balance them. They also make for great allies. Since they have no interest in conquering territory that would be hard to defend, they are less threatening to invite into the continental balance. Thus, as a rule, off-shore powers play the role of ‘off-shore balancers’: they move in to balance a potential regional hegemon since if a great power were to dominate the continent, it would become stronger than them – as well as a secure “off-shore power” themselves.

Off-shore powers are also natural contenders for naval primacy. Arguing that Russia doesn’t need a blue water navy, Bloch pointed out in 1902 that “unless you have a supreme navy, it is not worth while having one at all, and that a navy that is not supreme is only a hostage in the hands of the power whose fleet is supreme.”[5] Perhaps it is better to say that it is pointless to have a blue-water navy unless one can compete in the struggle for naval supremacy. Note that off-shore powers cannot, by definition, be great powers unless they manage to compete in sea power. They have no way of participating in the balance of power on their own. If, during the Second World War, Japan had command of the seas in the Pacific, the United States would not have been able to project its power across the ocean.

Once we recognize that both the evolution of the world-economy and the operation of the balance of power is a question of natural history, and indeed, of natural law, how should one think about the dynamics of the entire system? I do not pretend to know the answer, but the following seems to me to be plainly obvious:

Given the nexus between sea power and the ‘organizing center’ of the capitalist world-economy on the one hand, and the overwhelming advantages in terms of naval primacy and security of off-shore powers on the other, is the trajectory of the center of gravity of the world-economy all that surprising?

[1] Fernand Braudel. The Perspective of the World.

[2] Jonathan Israel. Dutch Primacy in World Trade. Page 209

[3] A. T. Mahan. The Influence of Sea-Power on History.

[4] John J. Mearsheimer. The Tragedy of Great Power Politics

[5] Jean Bloch. The Future of War. 1902


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