Syllabus topics (RTMNU)
- Industrial Revolution (1820-1850)
- Rise of European business (1850-1900)
- Impact of First World War on International Business
- The Great Depression and its effect on International Business
- Impact of Second World War on International Business
Industrial Revolution (1820-1850)
Definition: The Industrial Revolution was the change from hand-made production at home to machine-made production in factories, using power from steam and coal. It started in Britain in the second half of the 18th century (around 1760) and spread to Europe and America in the 19th century.
The period 1820-1850 (as named in the syllabus) is the phase when the revolution became mature in Britain and spread to Belgium, France, Germany and the USA. Railways, steamships and large factories became common in these years.
Main features:
- Machines replaced hand labour – spinning and weaving machines (spinning jenny, power loom) made cloth fast and cheap.
- New source of power – James Watt's improved steam engine used coal to run factories, ships and trains.
- Factory system – workers came to one place, worked fixed hours for wages, under supervision.
- Transport revolution – the first public steam railway (Stockton–Darlington, 1825) and the Liverpool–Manchester railway (1830) cut the cost of moving goods.
- Iron and coal age – iron replaced wood in machines, bridges and ships.
- Urbanisation – people moved from villages to industrial towns like Manchester and Birmingham.
Impact on business and economy:
- Mass production lowered cost per unit; goods became cheap for common people.
- Growth of capitalism – owners of capital (factory owners) became powerful; joint stock companies and banks grew to raise large funds.
- International trade grew – Britain imported raw cotton and exported finished cloth; it became the "workshop of the world".
- Colonies as markets – colonies like India supplied raw materials (cotton, indigo, jute) and bought British factory goods. Indian handloom industry declined (de-industrialisation).
- Social problems – long working hours, child labour, poor housing. This led to the first factory laws (e.g. Factory Act 1833 in Britain) and trade unions.
Rise of European Business (1850-1900)
Between 1850 and 1900 European business grew from small family firms into large companies that traded and invested all over the world. This is often linked with the Second Industrial Revolution (steel, electricity, chemicals, oil).
Reasons for the rise:
- New technology – Bessemer process (1856) made cheap steel; electricity, telegraph and telephone came into use.
- Railways and steamships – connected inland areas to ports; the Suez Canal (1869) shortened the sea route between Europe and Asia (India).
- Limited liability – laws in Britain (1855-1862) allowed companies with limited liability, so many investors could put money with less risk.
- Banking and stock exchanges – London became the world's financial centre; banks financed railways and mines abroad.
- Colonial empire – Britain, France, Germany, Belgium and others controlled colonies in Asia and Africa (the "Scramble for Africa" after 1880), which gave raw materials and protected markets.
- Free trade – Britain followed free trade after repealing the Corn Laws (1846); this helped trade grow.
Features of European business in this period:
- Growth of big business – cartels in Germany, large trading houses in Britain.
- Foreign investment – British capital built railways in India, USA, Argentina.
Effect on India: After 1858 India came under direct British Crown rule. Railways (first line Bombay–Thane, 1853), telegraph and ports were built mainly to carry raw materials out and British goods in. Indian cotton mills (Bombay, 1850s) and business families like the Tatas also began to grow.
Impact of First World War on International Business
The First World War (1914-1918) was fought between the Allies (Britain, France, Russia, later USA) and the Central Powers (Germany, Austria-Hungary, Ottoman Empire).
- Breakdown of trade – sea routes were blocked; submarine war sank merchant ships; normal trade between enemy countries stopped.
- War economy – factories shifted to making arms, ships and uniforms; governments controlled prices, raw materials and labour.
- End of gold standard – countries left the gold standard to print money for war; this caused heavy inflation.
- Debt – European countries borrowed heavily, mainly from the USA. The USA changed from a debtor to a creditor nation.
- Shift of economic power – from Britain/Europe to the USA and Japan, who supplied goods to the warring nations.
- Reparations – the Treaty of Versailles (1919) made Germany pay huge reparations, leading to hyperinflation in Germany (1923).
- Rise of protectionism – after the war, countries raised tariffs to protect home industry.
- India – imports from Britain fell, so Indian industries (cotton, jute, steel – Tata Steel supplied rails and steel) got a chance to grow; the government later began a policy of "discriminating protection" (1920s).
The Great Depression and its Effect on International Business
Meaning: The Great Depression was a severe worldwide economic slump from 1929 to the late 1930s. It started with the crash of the New York Stock Exchange (Wall Street) in October 1929.
Causes (in brief): over-speculation in shares, over-production in industry and farming, bank failures, unequal income, and the war-debt/reparation problems.
Effects on international business:
- Fall in world trade – world trade fell very sharply (by about two-thirds in value between 1929 and 1934, by common estimates).
- Protectionism – the USA passed the Smoot-Hawley Tariff Act (1930) with high import duties; other countries retaliated. This made the slump worse.
- Price crash – prices of farm goods and raw materials fell badly, hurting exporting countries like India.
- Unemployment – millions lost jobs in the USA, Germany and Britain.
- Collapse of banks and the gold standard – Britain left the gold standard in 1931; currencies were devalued.
- Government intervention – the USA's "New Deal" (President Roosevelt) and Keynes' ideas made governments spend more to create demand.
India: prices of jute, cotton and wheat fell; farmers could not pay land revenue; this added to the Civil Disobedience movement (1930).
Impact of Second World War on International Business
The Second World War (1939-1945) was the biggest war in history. Its impact on business shaped the modern world economy.
- Destruction – industries, cities and transport in Europe and Japan were destroyed.
- USA as the leading economy – US factories supplied the Allies; the USA came out as the richest and strongest economy and the dollar became the key world currency.
- Bretton Woods system (1944) – set up the IMF and the World Bank (IBRD); fixed exchange rates linked to the US dollar, which was linked to gold.
- GATT (1947) – an agreement to reduce tariffs and grow trade; it was replaced by the WTO in 1995.
- Marshall Plan (1948) – US aid to rebuild Western Europe; it opened the way for American companies and management methods in Europe.
- End of colonialism – India (1947) and many Asian/African countries became independent and started planning their own development.
- Growth of multinational companies – mainly American MNCs spread over the world after the war.
- New technology – radar, jet engines, nuclear energy, early computers came from war research and later helped business.
| Basis | First World War | Second World War |
|---|---|---|
| Period | 1914-1918 | 1939-1945 |
| Leading power after war | USA rises, Europe weak | USA and USSR (two superpowers) |
| Economic order after war | Protectionism, gold standard weakened | Bretton Woods, IMF, World Bank, GATT |
| Effect on colonies | Little change | Decolonisation (India free in 1947) |
Likely exam questions
- (Long, 8/16 marks) What was the Industrial Revolution? Explain its main features and its impact on business and international trade.
- (Long, 8/16 marks) Explain the impact of the First World War and the Great Depression on international business.
- (Short, 4 marks) Write a short note on the rise of European business during 1850-1900.
- (Short, 4 marks) State any four effects of the Second World War on international business.
- (Short, 4 marks) What was the Great Depression? Give its main causes.