Colonialism and Colonies

IV

Colonial Economies

The two broad types of colonies—settlement and exploitation—had very different types of economies.

A

Colonies of Settlement

Colonies of settlement began by specializing in what are called primary products. These products included commodities such as wool, in New Zealand, and gold, in South Africa. Over time, however, economies of settlement colonies came to resemble those of European nations: their agriculture diversified, and they developed manufacturing industries.

Because most settlement colonies gained political self-rule early, they could use protective tariffs (taxes on imports) to shelter their young industries. These industries could grow without competition from more advanced industries in other countries. The result was high-wage labor and a high standard of living, both for white settlers. Examples of settlement colonies that followed this model include British colonies in Canada, Australia, New Zealand, and South Africa.

B

Colonies of Exploitation

The colonies of exploitation had very different experiences: they remained politically dependent on the mother country and economically underdeveloped. Even after they achieved independence, many colonies of exploitation found developing their economies difficult. The economies of these colonies could typically be divided into two very distinct sectors, the export sector and the subsistence sector.

---

---

B

1

Export Sector

The export sector was based on the production or extraction of the colony’s principal primary products. These included cash crops such as sugar, tea, or rubber, or minerals such as gold, tin, or copper. Virtually all capital invested in a colony of exploitation went into the export sector.

This sector employed unskilled or semiskilled members of the relatively small native middle class, who earned more than their fellow citizens, although they were low-paid by European standards. The colony’s railway system operated like a funnel, moving goods efficiently outward to the ports, but not from point to point within the interior. Profits moved in the same direction as the goods on trains—out of the colony and into the colonizing country.

B

2

Subsistence Sector

The subsistence sector was the traditional part of the economy. It employed (or underemployed) the bulk of the population and produced most of the food that fed them. The subsistence sector was inefficient, had little investment, paid poor wages, and supported a low and often declining standard of living. Its food production failed to keep pace with the country’s rising population. Because the export sector provided few health benefits or other kinds of social security (such as assistance for the unemployed, the elderly, or people with disabilities), the subsistence sector absorbed much of the cost of raising children and caring for sick or old people. The subsistence sector thereby subsidized the relatively prosperous and advanced export sector, much as the colonial economy as a whole supported the growth of the mother country.

As a whole, the problems of an exploitation colony economy have tended to persist after the colony gained political independence, for several reasons. The former mother country sometimes continued to exercise some control over the economy, maintaining close relationships with the former colony’s new rulers and policy-makers. These colonies have also had difficulty attracting loans into the subsistence sector because returns on such loans are low. Investment has tended to go into the export sector where it will produce better results because exports, such as tin, coffee, or palm oil, are in demand and have established markets. For the same reasons, foreign aid has tended to flow into the export sector.

	More from Encarta
	•  Presidential Myths Quiz •  Coffee break: Recharge your brain