Mika Suonpää



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Cultural difference and overseas expansion: British enterprise in Southeast Europe and attitudes to Balkan Slavs as business partners, c.1878-1914

Mika Suonpää

2007
This paper1 examines reasons for comparative lack of British trade and investment in the Balkans (primarily in Serbia and Bulgaria), and investigates British reactions to difficulties in commercial contacts in the region, ultimately considering how the “commercial aptitude” of Serbs and Bulgarians was regarded by diplomats, merchants, and investors. Economic and financial barriers to British commercial contacts included the comparative expensiveness of British goods – mainly resulting from higher transport costs, and the general British preoccupation to invest within the Empire and in the Americas between 1870 and 1914.2 British views were shaped by three mercantile activities: proposals to establish banks and commercial agencies, participation in competitions for government contracts and concessions, and conducting of day-to-day trade. The existence of vast unexploited natural wealth, increased post-1880 demand for manufactured goods, relative geographical closeness after improvements in the transport network, and economic growth in the host countries increased British commercial interest towards the Balkans. First, the lack of British investment is examined in the context of foreign capital issues in the Balkans: how far was the absence of British investment explainable by the “image” of the Balkan Slavs in terms of commercial morality and trustworthiness? Second, the extent to which British unwillingness to invest impeded British firms’ ability to obtain lucrative concessions is considered. Finally, the ways in which the encounters of British merchants with local customs authorities shaped British views about Balkans Slavs as trading partners is investigated?
Most banks in Serbia and Bulgaria were established at least partly with foreign capital. British and French investors founded the Ottoman Bank in 1862, when its branches also began to spread into the Balkans, first to Bucharest and Thessalonica. From the mid-1870s, the Ottoman Bank also extended its operations to Bulgaria.3 In Bulgaria, other foreign financed banks were also founded – mostly with French, German and Austro-Hungarian capital.4 The Ottoman Bank was also involved in Serbian finances from 1895 onwards, but never opened a branch in the country.5 As in Bulgaria, most banks in Serbia were founded with capital from France, but also from Austria-Hungary and Germany.6

Given the predominance of London as the financial centre of the world, it was surprising that no banks were founded with British capital in the Balkans. This did not mean that British investors were not keen on the region. Since at least 1857, British investors and engineers were involved in financing the building of railways in the Balkans7, but it was only after 1883, when J.C. Morgan & Co. contemplated the establishment of a British bank in Serbia8, that investors considered engaging more British capital in the region. This tendency increased in the early years of the twentieth century. The following outlines the aspirations of various British schemes and offers explanations to comparative lack of British investment in the Balkans. The aim of these undertakings was to provide banking services (primarily to British firms that sought entry to the Balkan markets), to increase British-Balkan trade, to finance and promote British companies, and, ultimately to gain profits by making use of the rich natural resources in the region.9 These intentions corresponded with British overseas banks’ operations elsewhere in the world.10

However, most of the proposals ended up dead letters. Three “non-economic” reasons were evident: negative attitude towards commercial morality of the Balkan Slavs, volatile political situation, and promoters’ inability to obtain official backing of the Foreign Office. One British investor who had since 1873 had business contacts in Serbia, stated that he had not been able to find a single ‘honourable or respectable lawyer’ in the country, and argued that English investors should be ‘warned from investing…one single halfpenny’ because in Serbia the ‘whole population seems to be bonded together for the purpose of obtaining credit from foreigners only for the purpose of abusing it’.11 The predominance of French capital in the Balkans was illustrated by the contradictory attitudes of London and Paris committees of the Ottoman Bank towards granting credit to Balkan governments. In 1890, when Paris agreed to purchase Serbian stock with twenty-seven million francs, London’s allotment was only three million, which was later reduced to two million.12 Nine years later, the requested twenty million francs’ loan to the Bulgarian government was declined by London, and, they stated that it was ‘most undesirable for the Bank to be involved in any way in Bulgarian finance’.13 London also refused an advance payment to the Montenegrin government, because the repayment of the previous advance was delayed14, and declined the proposed £150,000 loan to the municipality of Belgrade in 1901.15 The perceived xenophobia of the Balkan Slavs can be regarded as another explanation for the lack of British capital in the Balkans. This attitude had a long history, and was primarily evident in the views of British diplomats. In 1860, the British consul in Belgrade argued that ‘such is the jealousy against foreigners’ that Serbia did not offer a ‘good opening for the capitalist’.16 Another diplomat argued in 1909 that the ‘while desirous of attracting foreign Capital…the Bulgarians cannot bear to see Foreigners making money’.17 If stereotype is defined as ‘a form of knowledge that vacillates between what is “in place”, already known and something that must be anxiously repeated’18, these types of views can definitely be seen as stereotypical. In effect, the British believed that “all Bulgarians were xenophobic” and that “all Serbs abused foreign investments” and these beliefs certainly decreased British financial interests towards these countries.

To an extent, unpredictable political situation prevented British capital from being introduced in the Balkans. From a theoretical perspective, political risk in international business exists when there are discontinuities in the business environment, when these discontinuities are difficult to anticipate, and when they result from political change.19 These types of difficulties were evident in British commercial encounters in the Balkans before 1914. In 1894, the fall of Stefan Stambolov’s regime in Bulgaria meant that a proposed Anglo-Bulgarian bank was not established because the deal was negotiated with his government.20 British consul-general in Sofia, argued that the main problem with one British scheme, aimed at founding a bank in Bulgaria, was that it involved the establishment of branches in Macedonia, where the would-be British managers of the bank ‘would have to exercise the greatest care in order to prevent their Bulgarian colleagues from using the Bank for political purposes’.21 During the First Balkan War in 1912, one British financial house considered taking legal action against the Bulgarian government, but was unable to do so due to the suspension of all civil courts as a result of the declaration of martial law in the country.22 Thus, regime change, fear that British-established banks could be used as political tools, and legal difficulties arising from political instability decreased British investments and other commercial contacts.



Another reason which contributed to the lack of British investment was that promoters of various schemes were severely scrutinised in the Foreign Office and in the Board of Trade – especially if a proposal had foreign connections. The absence of official backing was significant, because it was often difficult to conclude any business arrangements in the Balkans without it. For instance, the British consul-general in Sofia was concerned about one British promoter’s connection with the Dresdener Bank, because it ‘gave the whole scheme too much of a German character’.23 When a Paris investment house Gubbay & Co. expressed interest in creating an Anglo-Serbian bank, the British legation, although generally in favour of the idea, was cautious about involving French capital.24 Generally, British diplomats believed that Englishness, respectability, financial stability and local knowledge were the desired characteristics of a good business promoter. The official Britain was, therefore, much more interested in backing schemes promoted by “respectable Englishmen” than giving support to “men with doubtful reputations” or “foreign accents”. This was quite interesting since, as shown above, the British diplomats often accused Balkan Slavs of anti-foreign sentiments. Nonetheless, doubts about commercial aptitude of Balkan Slavs, political risks, and the awareness of probable difficulties in obtaining necessary official backing, reduced British investors’ interest towards the Balkans.
Most foreign capital came into the Balkans as state loans.25 The unwillingness of British banks and investors to provide Balkan governments with such loans meant that British firms were unable to acquire government contracts and concessions because public works projects, for instance, which often required a concession, were primarily financed with state loans. According to a 1906 report on Serbian trade, ‘deep-rooted mistrust which exists in the United Kingdom with regard to Servian commercial morality and the consequent disinclination to grant credit’ was among greatest barriers to the increase of British-Serbian trade.26 The following introduces British views about the inability of British firms to obtain concessions in the Balkans. Despite general negative view towards Balkan investments, British diplomats often urged investors to abandon their reservations and ‘prove more liberal in the matter of credit’.27 These concerns were also voiced by British companies that were willing to do business in the Balkans. Middlemore & Lamplugh stated in 1914 that, in addition to them, two other Midland manufacturers had tendered for military supplies, but eventually found that ‘there had been no prospect from the very beginning of the order being placed with an English firm, owing to the conditions upon which the loan had been negotiated’.28 The importance of British investments to British commerce was, therefore, widely acknowledged, and the lack of it seen as a serious impediment to British trade.

Another factor which was sometimes regarded as a barrier against the ability of British companies to acquire concessions was that the British felt that Balkan businessmen and governments were inexperienced in dealing with the demands of modern commerce. In 1877, in connection with the Waring Brothers’ attempt to acquire a concession to build and work the railway in Serbia, the British consul-general argued that Serbian ministers’ inability to reach any decisions was mainly due to the ‘want of experience in such matters’, which caused unnecessary delays.29 The British also believed that they were treated unfairly by Balkan governments who immorally favoured continental firms. The British ambassador in Belgrade argued that this tendency was evident because the continental firms ‘were able to obtain the specifications through private channels’ before British companies.30 Another complaint was that continental firms were favoured even if British firms had the best offer. In 1910, Vickers Sons & Maxim tendered for the supply of armaments to the Serbian army, and had quoted the lowest price, but nonetheless, the contract went to a German manufacturer. ‘The whole system of placing army contracts is rotten’, argued the British ambassador, since the department responsible was ‘amenable to bribery’.31 In sum, the British believed that they were placed into difficult positions because Balkan businessmen and governments were inexperienced, they showed favouritism towards continental firms, and were prone to bribery.


British traders’ encounters with customs authorities in Bulgaria undoubtedly shaped British views about Balkan Slavs as business and trading partners. British merchants often complained about the treatment they received, and occasionally, these complaints reflected an ideological conflict between the principles of free-trade and protectionism. This conflict became increasingly apparent after the old Ottoman trade agreements were abolished in Bulgaria and Serbia in the 1880s and 1890s. Prior to this, the Balkan governments had not been able to use protective measures.32 The following investigates British reactions to trade barriers in the Balkans, and examines how these difficulties influenced the ways in which the Balkans Slavs were regarded as trading partners.

British merchants and diplomats often felt that they were treated unfairly in comparison to traders from other countries. An Anglo-Indian company Becker, Gray & Co. argued that they had been subjected to a much higher duty than what was the case with similar products from other countries, and because of this the ‘business will now be quite impossible’.33 One diplomat’s assessment of the Bulgarian customs authorities was a telling example of overall attitudes: ‘Indeed, it may be said that the general attitude of the Government in matters relating to the customs is characteristic of the national reputation for “hard bargaining”.’34 These examples illustrated that commercial difficulties reinforced, but also created stereotypical perceptions of the Balkans in Britain. In addition, British merchants often complained that duties were higher than the expected profits. The export manager of the Lever Brothers Ltd. thought that higher duties were ‘an unfair attack’ on the part of the Bulgarian customs authorities.35 In 1911, Altendorf & Wright informed the Foreign Office that their ‘business has come to a sudden stop’ owing to the duty increase which meant that it was now ‘higher than the value of the goods’. They feared that unless duties were reduced the ‘business will be lost to us for ever’.36 Thus, the British felt that protective measures were exclusively directed towards British exporters, and higher tariffs made trade unprofitable.

Political risks also directly affected British trade in the region. In the aftermath of the Serbian-Bulgarian War (1885-6), after which Bulgaria and East Rumelia were united, the customs system created a lot of confusion among British traders and diplomats. They were concerned that goods from the Ottoman Empire, which was a popular route by which British goods entered the Balkans37, would be subjected to double duties – first on the Ottoman-East Rumelian border, and then on the East Rumelian-Bulgarian border. The British consul-general argued that double duties especially affected British trade because duties on British goods exceeded those ‘levied on similar goods of other nations’.38 The declaration of formal Bulgarian independence in 1908 was regarded by the chairman of the Phoenix Assurance Co. as an impediment to British-Bulgarian commerce. He argued that ‘politically Bulgaria now considers itself free from any liability towards foreigners’ and that unless precautionary measures were taken ‘British Companies and firms trading in Bulgaria will be seriously handicapped’.39

At times, these types of difficulties resulted in appeals to free-trade principles. W.H. Davis & Co. complained about duty increases which according to their view did ‘very serious damage to British trade’, and hoped that the Foreign Office would ‘in the interest of Free Trade’ obtain an alteration in the duty.40 High tariffs were also seen as arbitrary measures which acted as barriers to British trade. One Manchester firm argued that the authorities behaved ‘in most arbitrary and unfair way’, and that it was the responsibility of the British government to ‘protect British trade and shield British subjects from such cynical attacks’.41 Thus, the British believed that protective measures were principally directed against British exporters, and that political changes created confusion about customs laws, and denied foreign merchants the legal protection that they had enjoyed under capitulations. These difficulties sparked appeals to free trade, but also to protection by British merchants. On the whole, high tariffs were regarded as arbitrary measures which directly held back British trade in the Balkans.


British investors and diplomats believed that the Balkan Slavs were dishonest, unreasonable, incompetent and xenophobic in commercial matters. British firms rarely wanted to involve Balkan businessmen in their ventures, and, even though the importance of having local agents and contacts with local banks was acknowledged, they were often regarded by British firms as fraudulent and unreliable. Furthermore, the perceived anti-foreignism – often regarded as a major part of the “national character” in the Balkans – was seen as the key factor diminishing the value of the Balkans as an attractive area for investment. Consequently, the lack of British interest in providing Balkan governments with state loans resulted in the inability of British firms to acquire concessions and government contracts which had a negative effect on British trade. British merchants often complained about the “unfair” treatment they had received in the hands of Balkan customs authorities. This was especially the case from the 1880s onwards when former Turkish trade agreements were abolished, and the Balkan governments were able to use restrictive measures to protect home industries. Sudden duty increases and unexplained fines inflicted on British exporters were regarded by them as “arbitrary measures”, specifically directed against British merchants, which, it was believed, seriously damaged British trading interests in the region, and contributed to the impression of unreasonableness, untrustworthiness and anti-foreignism of the Balkan Slavs. Thus, in addition to economic and financial factors, negative attitudes and political risk importantly contributed to the lack of British commerce in the Balkans, and strengthened already powerful stereotypically pessimistic perceptions.

1 This paper is compiled from a chapter in my thesis which on the whole considers British attitudes towards Balkan Slavs in the context of British imperial culture between 1856 and 1914.

2 H. Feis, Europe, the world’s banker, 18709-1914 (New Haven: Yale University Press, 1930), p. 23.

3 A. Autheman, La Banque Imperiale Ottomane (Paris: Comite pour l'histoire economique et financiere, Ministere de l'Economie et des Finances, 1996), pp. 274-5.

4 L. Berov, ‘Foreign capital in the Bulgarian banking system, 1878-1944-1997’, in K. Kostis (ed.), Modern banking in the Balkans and West-European capital in the nineteenth and twentieth centuries (Aldershot: Ashgate, 1999), pp. 15-16.

5 C. Clay, ‘The Imperial Ottoman Bank in the later nineteenth century: a multinational “national” bank’ in G. Jones, Banks as multinationals (London: Routledge, 1990), p. 150.

6 A. Mitrovic, ‘Foreign banks in Serbia, 1882-1914’, in Modern banking in the Balkans, pp. 76-7.

7 J. Lampe & M. Jackson, Balkan economic history, 1550-1950: from imperial borderlands to developing nations (Bloomington: Indiana University Press, 1982), p. 209.

8 Mitrovic, ‘Foreign banks in Serbia’, p. 79.

9 National Archives, Kew, Foreign Office (FO), FO 368/11, Mendelssohn to Petrov, Sofia, 20 April 1906. In addition to Mendelssohn, the establishment of the bank was promoted by a member of the London Stock Exchange Benito Weiser, a well known Cape merchant Fred Puzey, and a London banker John Rodger. FO 368/47, Whitehead to Grey, Belgrade, 12 December 1906; FO 368/126, Anglo-Servian Syndicate to Whitehead, London, 30 January 1907; FO 368/1115, Rodgers to Foreign Office, London, 9 June 1914.

10 M. Wilkins, ‘Banks over borders: some evidence of their pre-1914 history’ in Banks as multinationals, p. 225.

11 FO 105/98, P. Stanhope, ‘Memorandum’ (1888) in ‘Claim of Mr. P. Stanhope against the First Bank of Serbia’, vol. 1 (1888-1890)

12 Guildhall Library (GL), London, Ms 23967/5, Imperial Ottoman Bank (IOB), London minutes, 1888-1897, London, 15 October 1890; 29 April 1891.

13 GL Ms 23967/6, IOB, London minutes, London, 1 November 1899.

14 IOB, London minutes, London, 17 August 1898; 21 June 1899.

15 IOB, London minutes, London, 9 May 1901.

16 FO 881/1075, R. Dalyell, ‘Report upon the Principality of Servia’ (1860), p. 9; Also, FO 881/2539, H. Northcote, ‘Servian railway question’, 10 February 1873, p. 5: FO 881/6731, Brophy to Nicolson, Varna, 27 July 1895; FO 881/8873, G. Buchanan, ‘General report on Bulgaria for the year 1906’, (1907), p. 8

17 FO 368/278, Findlay to Grey, 13 October 1909. Also, FO 371/1304, H. Bax-Ironside, ‘Bulgaria – annual report, 1911’, (1912), p. 10.

18 H. Bhabha, The location of culture (London & New York: Routledge, 1994), p. 66.

19 S. Robock, ‘Political risk: identification and assessment’, Columbia Journal of World Business, 7 (1971)

20 Mendelssohn to Petrov, Sofia, 20 April 1906.

21 FO 421/259, M. de C. Findlay, ‘Bulgaria – annual report, 1909’, (1910), p. 25.

22 FO 368/659, Bax-Ironside to Grey, 30 October 1912.

23 Bax-Ironside to Grey, 30 October 1912

24 FO 881/8963, J. Whitehead, ‘General report on the Kingdom of Servia for the year 1906’ (1907), p. 6.

25 A. Kostov, ‘Western capital and the Bulgarian banking system: late nineteenth century-Second World War’ in Modern banking in the Balkans, p. 61.

26 FO 368/11, ‘Report for the year 1904 on the trade of Servia’ (1906), p.16.

27 FO 368/800, Bax-Ironside to Board of Trade, Sofia, 14 May 1913. Also, FO 368/1115, Crackanthorpe to Grey, 27 February 1914. See also, FO 371/1219, C. Barclay, ‘Servia – annual report, 1910’, (1911), p. 4.

28 FO 368/1115, Middlemore & Lamplugh to Commercial Intelligence Branch, Walsall, 17 January 1914.

29 FO 78/2643, St John to Earl of Derby, Belgrade, 24 March 1877.

30 FO 881/9467, J. Whitehead, ‘Servia – annual report, 1908’, (1909), p. 5. Also, FO 368/126, Vulcan Foundry Ltd to Board of Trade, Warrington, 26 February 1907; FO 368/519, Walton, Gooddy & Cripps to Foreign Office, London 6 May 1911.

31 FO 371/1219, C. Barclay, ‘Servia – annual report, 1910’, (1911), p. 4; FO 371/1742, C. Barclay, ‘Servia – annual report, 1911’, (1912), p. 3.

32 I. Berend & G. Ranki, Economic development in East-Central Europe in the 19th and 20th centuries (New York & London: Columbia University Press, 1974), p. 88.

33 FO 368/10, Becker, Gray & Co to India Office, London, 12 March 1906. Also, FO 368/10, Samson & Unna to Dundee Chamber of Commerce, Dundee, 20 March 1906; FO 368/395, E.H. Kannreuther & Co. to Findlay, Birmingham, 12 October 1910; FO 78/ 4139, Richards to Hardinge, Burgas, 2 December 1888; Hardinge to Marquis of Salisbury, Sofia, 7 December 1888. Also, FO 913/17, K. Hazzopulo & Sons, Logios Brothers, Z & A Hazzopulo & Co. to W. Dalziel, Rustchuk, 15 December 1887. Britain and Bulgaria signed a provisional commercial arrangement in December 1889, which was designed to end these types of barriers to British-Bulgarian trade. This arrangement guaranteed most-favoured-nation treatment to both signatories. Most-favoured-nation clause was extended to British colonies and possessions in April 1906. Evidently, however, the legislation did not work in practice.

34 FO 371/1304, H. Bax-Ironside, ‘Bulgaria – annual report, 1911’ (1912), p. 19.

35 FO 368/11, Lever Brothers Ltd to Board of Trade, Cheshire, 11 August 1911.

36 FO 368/519, Altendorf & Wright to Foreign Office, Birmingham, 12 April 1911.

37 Another popular route was through Bulgarian Black Sea ports of Varna and Burgas.

38 FO 78/3900, Lascelles to Earl of Rosebery, Sofia, 5 March 1886; FO 78/4140, E. Hertslet, ‘Commercial relations between this country and Bulgaria’ (1888)

39 FO 368/278, Phoenix Assurance Co to Mallet, London, 13 July 1909.

40 FO 368/278, Davis to Grey, Birmingham, 11 May 1909; 5 November 1909.

41 FO 368/394, Logios to Manchester Chamber of Commerce, Ruse, 12 April 1910. Similar cases were reported at the time in Serbia. See also, Whitehead, ‘Servia, 1909’, p. 6; FO 368/174, Ehrenbach, Brumm & Co to Grey, Bradford, 28 March 1908. Also, FO 368/174, Martin to Foreign Office, 29 April 1908; FO 368/278, Brown to Board of Trade, Carlisle, 30 December 1909; G. Macgregor, ‘Commercial abuses in Bulgaria’ (1909); FO 368/395, Brigg, Neumann & Co to Findlay, Bradford, 1 November 1910.


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