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IEA - Empire and slavery did not make Britain rich, finds new IEA book

Colonialism and the slave trade were, at best, minor factors in Britain’s prosperity and may have been net lossmakers.

  • An increasingly prominent anti-capitalist narrative claims that empire and slavery are the basis of Britain’s wealth.
  • Colonial trade was a small proportion of Britain’s economy, and colonial profits can only have financed a modest share of Britain’s investment and capital formation (perhaps around 7%-15%). Most economic activity was domestic and international trade with Western Europe and North America.
  • Much of Britain’s trade with its colonies could still have happened absent the empire
  • Slave-based sugar plantations added just under 2.5% to the value of the British economy at its peak, less than the share of sheep farming.
  • British imperialism came with significant military and administrative costs and necessitated higher taxes, which could have outweighed any benefits.
  • Business and Trade Secretary Kemi Badenoch says, ‘This clear-headed analysis from the IEA is a welcome counterweight to simplistic narratives that exaggerate the significance of empire and slavery to Britain’s economic development.’

The British Empire and the slave trade were not responsible for the United Kingdom’s prosperity, according to new research from the Institute of Economic Affairs, a free market think tank.

This analysis comes amid a renewed debate about Britain’s colonial legacy sparked by comments from Business and Trade Secretary Kemi Badenoch. In a speech at a TheCityUK conference earlier this month, Badenoch pushed back against the idea of the “wealth and success of the UK as being down to colonialism or white imperialism or privilege or whatever”.

The book highlights that most of Britain’s economic growth in the imperial period did not come from its colonies. Trade only accounted for about a quarter of economic output, and most of that trade was with Western Europe and North America — not the Empire. For that reason alone, the Empire cannot have been the decisive factor explaining domestic investment and later wealth.

“The transatlantic slave trade was no more important for the British economy than brewing or sheep farming, but we do not usually hear the claim that ‘brewing financed the Industrial Revolution’ or ‘sheep farming financed the Industrial Revolution,” writes Dr Kristian Niemietz, book author and Editorial Director at the IEA.

Niemietz concludes that while colonialism did deliver some modest gains for the British economy, it came with eye-watering military and administrative costs and so may have failed any cost-benefit test. Analysis suggests that the British tax burden could have been cut by almost a quarter in the absence of the Empire, freeing up resources for more productive uses.

“Profits earned from overseas engagement were large enough to make some individuals very rich, but they were not large enough to seriously affect macroeconomic aggregates like Britain’s investment rate and capital formation,” Niemietz writes. Early anti-colonial liberal thinkers Adam Smith and Richard Cobden similarly argued that the British Empire enriched a small group of politically privileged traders at the expense of general prosperity.

The book also highlights evidence that many countries, such as Germany or Switzerland, industrialised and became rich before or without establishing empires. Spain and Portugal, the pioneering colonial empires of the pre-industrial era, have consistently performed below the European economic average. These examples raise further doubts about claims that colonialism was central to Western wealth creation.

Niemietz, nevertheless, highlights evidence that colonialism left significant economic and political scars on former colonies by leaving behind corrupt institutions. Belgium’s brutal colonial rule in the Congo was also an exceptional case: a profitable enterprise for King Leopold II due to natural resource extraction and not subsidised by Belgian taxpayers.

Dr Kristian Niemietz, report author and IEA Editorial Director, said:

“The idea that the Western world, and Britain in particular, were built on colonial exploitation and plunder, has become extremely fashionable again in recent years. It serves as an ‘original sin’ story of the West, which also doubles up as an original sin story of capitalism. But it is almost certainly empirically false. 

“Imperialism made, at most, a fairly minor contribution to the West’s economic development, and quite possibly none at all.”

Kemi Badenoch, Secretary of State for Business and Trade and Minister for Women and Equalities, said:

“This paper by Kristian Niemietz shows it was British ingenuity and industry, unleashed by free markets and liberal institutions, that powered the Industrial Revolution and our modern economy. It is these factors that we should focus on, rather than blaming the West and colonialism for economic difficulties and holding back growth with misguided policies.

“This clear-headed analysis from the IEA is a welcome counterweight to simplistic narratives that exaggerate the significance of empire and slavery to Britain’s economic development. The paper argues persuasively that colonialism played a minor role in Britain’s economy, and may have actually been a net negative after accounting for military and administrative costs – a reminder that state overreach is always an expensive endeavour.”

Dr Lawrence Goldman, historian and former director of the Oxford Dictionary of National Biography, said:

“Kristian Niemietz is to be thanked for his lucid and well-evidenced paper showing that Britain’s wealth since the Industrial Revolution has neither been dependent on slavery nor colonialism. Economic historians have known this for decades;  nevertheless, false ideas still circulate, no doubt for political and ideological reasons. 

“It was Disraeli in 1852 who called the colonies ‘millstones round our necks’. It’s to be hoped that Dr Niemietz’s paper will circulate widely and re-establish historical truth.”

Dr Zareer Masani, historian and author, said:

“I quite agree with this analysis. The empire was a drain on British resources, certainly from the mid-19th Century onwards. Government in India, for example, produced notoriously low taxes, constantly supplemented by London. 

“The UK also bore the brunt of the expenditure to protect imperial naval and military defence and the ornamental aspects of grand imperial events. Arguments that the empire was a net gain for Britain, never mind the core of its industrial power, could not be further from the truth.”


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