The profits earned by capitalist from international trade, and the flow of gold and silver from the
Americas, financed the accumulation of capital that furthered reinforced industrialization and
capitalism.

1.2 Capitalism and Colonization

Capitalism as an economic system spread beyond Europe, mainly to North America and
Australia. One may ask why capitalism and new technologies did not spread elsewhere. One
possible answer is that the indigenous peoples of North America and Australia were not
particularly numerous as compared to other regions. As the descendants of the English and
French colonists grew in number and with new immigrant waves, primarily from Europe, the
European population overwhelmed the indigenous peoples who were (at best) pushed aside. The
European immigrants using their skills and by acquiring technologies from their home countries
embarked on creating new industries. However, in Africa, the Indian Subcontinent, East Asia,
and in Latin America the indigenous peoples were relatively numerous. Being greatly
outnumbered, the colonist created an administrative structure, which encouraged or more likely
coerced, the indigenous peoples to produce primary products for export to the home countries.
These primary products were then transformed in the production process into manufactured
goods, some of which were re-exported back to the colonies. Under these conditions there was
little incentive to create new industries in these colonies.

1.3 Japan

Japan proved to be an exception. Until the Meiji Restoration (1868) Japan was basically a closed
society. Feudal structures and a strong caste system were the main characteristics of this island
nation. Being isolated and having an insular culture, which mistrusted foreigners, the Japanese
were caught unaware of the economic and military power of the Western nations when Admiral
Perry sailed into Yokohama harbor. The Japanese, understanding their great disadvantage, began
a frantic and zealous campaign to industrialize in the latter part of the 19th century. Borrowing
western technologies, the Japanese managed to build steel industries, create a modern navy and
in 1906 defeat the Russians in a naval battle in the Sea of Japan.

1.4 Britain’s Decline

The world economy during the 19th century was centered on Britain's early start in the industrial
revolution. Current account surpluses led to the English Pound becoming the world’s major
currency and the gold standard was established creating a system of fixed exchange rates. By the
end of the century British foreign direct investment and the diffusion of technology spread
industrial development to the European continent and North America leading to greater
international competition. However, towards the end of the 19th Century Britain did not respond
to new technological and managerial realities. Their dominance began to diminish. The advent of
steel and chemical industries, which enjoy economies of scale, led to the creation of large
corporations. The British maintained the status quo with small to medium size family