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IS IT strange to begin the systematic analysis of relations between private investment and diplomacy with chapters on the use of investments by diplomacy as tools or instruments of foreign policy? Not if one has studied the actual cases of international friction over private foreign investments. Despite widespread beliefs and convincing theories to the contrary, private foreign investments are found much more frequently as tools of diplomacy than as instigators of diplomatic action in those cases of international friction over foreign investments which may be classified as dangerous (that is, more than mere altercations, but likely to lead toward war, especially to a big war between major powers). This is not a critique of "the economic interpretation of history." The foreign policy of which private investments have become the tools in these cases may have been determined wholly or in part by "economic" factors. That can be debated pro or con; it is not debated here. What does not seem to be arguable, however, on the basis of careful observation of these phenomena in the real world, is that with respect to the immediate relation of private investments to diplomacy the private investments figure most frequently (not exclusively) in cases of dangerous international friction as servants, rather than as masters.
One is pressed to this conclusion particularly when he turns to the minute investigation of several cases which have been widely cited to illustrate how private investments initiate causes of war, and these cases turn out instead to have been flagrant examples of investments pressed into service for political ends. Two such cases follow.
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"The Japanese-Russian War, it is now admitted, was largely the result of the clamor of financial interests seeking to exploit Manchuria," says a commentator on the economic causes of modern war,(1) and many others have endorsed this view. Specifically, influential persons interested in timber enterprises on the Yalu River, part of the boundary between Manchuria and Korea, are alleged to have performed the double mischief of urging on the government of the Tsar and alarming the Japanese. In the words of another writer who strongly emphasizes the direct financial causation of international conflict:
These memoirs [of General Kuropatkin] show that all the Ministers of the Tsar, Count Lamsdorf (Foreign Secretary), M. Witte (Minister of Finance), and General Kuropatkin (Minister of War) were sincerely disposed to evacuate Manchuria, and no less opposed to any advance towards the Yalu River and Korea. They failed, because the timber enterprise, which was the attraction of the Yalu district, was a court venture. These wealthy forests, made over to a Russian. promoter in 1896, when the Emperor of Korea was a fugitive in the Russian Legation at Seoul, had passed into the hands of a courtier named Bezobrazoff, an intimate of the Grand Dukes, the Dowager-Empress and the Tsar. The company which he formed to work his concession had several of these people among its shareholders, and there is little doubt that the Tsar himself was interested to the extent of £200,000. Admiral Alexeieff, a creature of Bezobrazoff's, sent to the Far East as Viceroy, overruled the Ministers at home, and conducted the timber enterprise as an Imperial undertaking. It was neither the Russian people nor the Russian bureaucracy which had determined to keep the Yalu district and to fight Japan for its possession. The resolution to possess it came from a little group of interested courtiers, who were using the natural resources to further their private financial ends.(2)
Now it is true that a little clique of influential courtiers worked for an aggressive policy in the East, contrary to the better judgment of Witte and other ministers, and it is true that this Bezobrazoff group was interested in forestry concessions on the Yalu. Yet to conclude that the desire for the aggressive policy was born of a desire "to further their private financial ends" is putting the cart before the horse. Actually, the "economic" enterprise was set up in order to forward a policy of imperial expansion in the Far East which the group already favored, and far from shaping political events to insure private gain, the members seem to have cheerfully contemplated some economic loss for the attainment of their political objectives.
The early history of the Yalu enterprise is essential to an understanding of its activities.(3) In 1896 a Russian merchant named Brinner secured a concession from the Korean government to exploit the timber tracts along the Tumen and Yalu rivers. As a result of the Russian withdrawal from activity in that region he decided to sell his rights to international interests headed by Rothstein, a son-in-law of one of the Rothschilds. The news leaked out, and a small group composed of Matiunin, just appointed Russian Minister to Korea, Vonliarliarski, a well known developer, and later Bezobrazoff, a retired officer and state councillor,(4) resolved to save the project and use it for the expansion of Russian interests which official Russia was giving up. In February, 1898, after an unsuccessful attempt to interest Muraviev, the Minister of Foreign Affairs, this group turned to the Tsar himself. They proposed the establishment of an East Asiatic Company, "guided by the august will of the Russian Emperor," which would serve as a political instrument, probably in the manner of the British chartered companies then being so assiduously but artificially imitated by the imperialists of France and Germany as well as Russia.(5) The promoters claimed that the plan would soon enable Russia to obtain complete control of Korea, and it was proposed to have representatives of the company enter the Korean service. The enterprise, however, would require stockholders "who would not demand immediate dividends" and who would be prepared to "render a service to the Tsar." American and other capital might be taken in to act as a screen. A conflict with Japan could be avoided by "granting her certain material advantages in Korea with the help of the company." Above all, "our fighting vanguard, up to 20,000 men, disguised as lumbermen," could be deployed on the area covered by the concession under pretense of economic exploitation.(6)
Thus the "economic" enterprise on the Yalu was conceived! The Grand Duke Alexander Michailovich and other influential persons became interested. The Tsar was much impressed by the possibility of saving Korea for Russia, and it was decided to acquire the concession from Brinner, Privy Councillor Neporoshnov acting as go-between. In June, 1898, an expedition financed by Imperial Cabinet funds set out for northern Korea under the command of Neporoshnov. It was armed with instructions from Baron Fredericks, who had been ordered to participate "in a private way, as the Emperor's man of confidence." The War Department sent along an officer to make surveys, and Muraviev was told frankly that the expedition was pursuing "political ends." It drew up military, economic, and climatic descriptions of northern Korea, surveyed large areas, studied possible railroad routes, made certain that the population was not hostile and that the Japanese had not yet arrived, and in addition, nearly succeeded in persuading the Emperor of Korea to grant a concession for the exploitation of the Cabinet lands and the mineral resources of his country. But despite this auspicious beginning the project had to be dropped for the time being. The opposition of Finance Minister Witte, who stood for a more moderate policy in the Far East at this stage and who had not even been informed of the undertaking, was feared. Even Muraviev objected to spending money on the mineral concession.
After the Boxer uprising the expansionists at St. Petersburg urged that Russia should take advantage of the confusion to improve its position in Manchuria and Korea. Military and naval men insisted on obtaining and holding strategic bases. Count Witte, on the other hand, was for moderation. He favored a policy of conciliation with the other powers. Their protests had forced Russia to drop negotiations looking toward a monopoly of concessions in Manchuria and to promise in the convention of April, 1902, to evacuate Manchuria within eighteen months. "Had the Russians lived up to the April Convention and carried out the evacuation of Manchuria systematically there would have been no war. Not a single major power concerned would have disputed the Russian "influence."(7) But the governors of Russia, contemptuous of the Japanese army, were not in a conciliatory mood. Bezobrazoff and his friends bombarded the Tsar with memoranda characterizing the convention as a confession of weakness, as an abandonment of Russian interests, and as a menace to Russia's position not only at Port Arthur but in the whole Far East. The new Minister of the Interior, von Plehve, evidently with his eye on Witte's position, expounded the theory of the "little victorious war" as a corrective for domestic unrest. He therefore identified himself with the Bezobrazoff group, and his support was probably decisive. Again Bezobrazoff stepped forward with his all-embracing plan.
Russian policy, said Bezobrazoff, must acquire unity of purpose, energy, and determination. Far from evacuating Manchuria, Russia must greatly strengthen its forces in the Far East in order to silence the opposition. It must create real economic interests in the Far East. A screen must be built up on the Yalu to protect the Russian flank from a possible Japanese attack and to threaten the Japanese should they make trouble. This might be done through the East Asiatic Industrial Corporation based on the Brinner concession. Other concessions might be obtained in Korea, and an attempt should be made to draw American support and sympathy to the Russian side by associating American capital in such enterprises. As for Manchuria, the policy should be to obtain control of the major economic undertakings.
These plans so fired the imagination of the Tsar that Bezobrazoff was sent to the Far East to reorganize Russian activities, and he went not only with the blessing of Tsar Nicholas, but with two million roubles appropriated by the Ministry of Finance "for purposes known to His Imperial Majesty." With this subsidy, and in feverish baste, Bezobrazoff began to establish "real Russian interests" of an "economic" nature. Offices of the East Asiatic Industrial Corporation were opened at Port Arthur and at Seoul. Negotiations were begun for a twenty-five-year monopoly of lumbering rights on the Manchurian side of the Yalu, and woodsmen (under the command of reserve officers) began activities in dead earnest on the Korean side. Barracks appeared, and under the pretext of protecting workmen and property, Russian soldiers were sent across the river. They began to construct military roads throughout the territory, thus bringing a large part of northern Korea into direct contact with their military base. The harbor of Yongampo, near the mouth of the Yalu, was a long distance from the timber operations, but it controlled the valley and might be made a point of junction between the Trans-Siberian Railway and the projected Seoul-Wiju line. Russian soldiers in civilian dress entered Yongampo in May, 1903, with a large number of Korean and Chinese coolies and began to build what they described as "timber warehouses." An American who visited the scene in December wrote that the Russians had already erected substantial brick buildings, including large barracks and stables, that a breakwater had been constructed, that the one hundred Russians, with one or two exceptions, were all military men, that they made no secret of building operations contemplated for the following spring, and that everything indicated a semi-political and semi military permanent occupation.(8)
The Japanese could hardly be expected to overlook the unmistakable meaning of these operations. Opponents of Bezobrazoff in St. Petersburg warned in vain of dangerous political complications. Their advice to withdraw the troops across the Yalu, resume negotiations with Japan over the Korean question, and reduce the economic projects to a strictly commercial, private footing was ignored. "Nicholas no longer had any taste for long-winded conference reports. His mind was filled with visions of the acquisition of half of Asia and he found the flowery and exuberant epistles of Bezobrazoff more palatable." The influence of the adventurer-promoter prevailed. Already a veritable warfare had begun on the Yalu between Russian and Japanese timbermen. Diplomatic relations were broken off in February, 1904, and the Russo-Japanese War was at hand.
Japan might have hesitated about going to war over Manchuria alone, but in the view of Japanese statesmen the developments in Korea made action inescapable. The purposes which brought Russian activities across the Yalu must therefore be charged with a large share in the causation of the war. The foregoing has made sufficiently plain, however, that these purposes were not the promotion and protection of private investments made in the pursuit of commercial gain, but that the famous timber enterprises themselves were simply screens for political and military ambitions. The stockholders had to be persons "who would not demand immediate dividends" but would glory in rendering service to the Tsar. The "woodsmen" were soldiers. The initial expenses were defrayed by secret political funds from the Russian treasury. The operations undertaken were not designed to yield commercial returns, but to "create" what are called "real interests." It is not strange that the product of this "economic" venture was not lumber, but war.
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Another war often ascribed to the direct influence of foreign investments on foreign policy is the Turco-Italian War of 1911-12, which resulted from Italy's seizure of Tripoli. In this instance the Banco di Roma is supposed to have pressed the government into action in order to protect its investments in Tripoli and to enhance the value of its land holdings.(9) As in the Yalu case, examination of the episode in its total setting will show that such an explanation puts the cart before the horse. The Banco di Roma established un-economic "economic interests" in Tripoli at the urging and under the subsidy of the Italian government, which already knew that some day Italy was to assert itself as a great power by taking that territory from Turkey. When Turkish resistance to this policy of "peaceful penetration" imperiled the bank's enterprises it did add to the general pressure on the Italian government for immediate and decisive action of the sort which had been contemplated anyway for years, and in this sense the bank did become an active instigator as well as a passive instrument of state policy. This is a rather general characteristic of private investments used as tools of diplomacy. They do not remain merely tools, but having been led into rather large risks in support of government policy, they in turn demand that the government support them, which usually means a pressure that is hard to resist in favor of continuation and intensification of a policy of aggressive penetration. This might be called the "balance wheel" effect of private investments used as diplomatic tools; they add momentum to policy. Some details of the Tripoli case are most enlightening and will be briefly recited.
It is easy to establish beyond any doubt whatever that long before the Banco di Roma went to Tripoli, Italian statesmen of nationalist inclinations were definitely planning to take the territory. Francesco Crispi, as early as 1890 and before, made diplomatic preparation for that purpose with England, Germany, and Austria-Hungary.(10) In fact, European powers ever since the Congress of Berlin (1878) had intimated that Italy should seek expansion in Tripoli, and Italian aspirations had been turned still more in that direction by the French seizure of Tunis in 1881, which blocked Italy's hopes there and drove Italy into the Triple Alliance. From 1900 to 1902 Italian diplomats strengthened secret understandings with France, Great Britain, Germany, and Austria-Hungary which gave Italy a free hand in Tripoli, and Russia's approval was purchased in a secret treaty of 1909 regarding the Dardanelles.(11) If further proof of Italian intentions were needed it is found in the reports sent home in 1901 and 1902 by the German ambassador to Rome. Germany, as Italy's partner in the Triple Alliance, regarded the Tripoli venture with apprehension, but it was already apparent that if France should take Morocco Italy would take Tripoli.(12)
What was behind this intention on the part of Italian statesmen, already so definitely, fixed by 1902? Certainly not Italian investments in Tripoli, which were non-existent at this time. Nor could Italy by any stretch of the imagination be conceived to have had "surplus capital" pressing for investment opportunities abroad. The roots of Italian policy toward Tripoli must be sought in a state of mind affecting influential Italians, a spiritual mood calling for national expansion, and not in immediate economic factors. To be sure, this spiritual mood itself doubtless grew out of complex causes among which some of the most important were economic in the broad sense, but even these indirect elements did not include private foreign investments or pressure for investment opportunities in 1902. The expansionist state of mind was partly an imitation of other and more powerful nations. Territorial conquest had prestige value---it was "being done" in Africa and elsewhere by the best of international society. A new state like Italy, only recently formed out of a congeries of small principalities, might prove its right to a place in the world by taking colonies. Furthermore, said influential nationalists, the work of the Risorgimento had not yet been completed. The unification of Italy had created a state, but not a nation. It was necessary to achieve moral unity, to form Italians and an Italian soul, and this could be accomplished by national action. Crispi had carried this work forward, but his plans for expansion had been rudely interrupted by the disastrous defeat at Adowa (1896) in which the "backward" Abyssinians, whose territory was to have added to Italian greatness, completely routed the arms of Italy. Now it was necessary to continue, and by achieving glories as a colonizing nation---worthy of the tradition of Rome---to efface the memory of Tunis and of Adowa, and to raise Italy from the ranks of the second-rate powers. These were the chief driving forces which, directly in the minds of statesmen and indirectly through the agitations of the nationalist press and nationalist orators, had set Italian policy definitely toward Tripoli.
But these spiritual forces needed material tools. Even with the diplomatic way smoothed, outright unprovoked annexation by force seemed a bit foolhardy.(13) "Peaceful penetration"---the gradual establishment of dominant Italian "interests" of all kinds in Tripoli, with the accompaniment of increasing political control, perhaps some day passing over into sovereignty---was obviously indicated. In what way does the government intend to exercise the paramount rights in Tripoli which the powers have recognized as belonging to Italy? asked Foreign Minister Tittoni before the Italian Senate in May, 1905. "Is it preparing to occupy Tripolitania? To this question I answer decidedly: No. To my mind Italy should not occupy Tripoli except when circumstances will make such a course absolutely indispensable." But no other power must increase its influence there, and "the rights we have upon Tripoli for the future must give us, even at present, a preference in the economic field, in directing our capitals to that region and in promoting commercial currents and agrarian and industrial enterprises." He defended the government against charges of negligence with regard to Tripoli. It was doing much in that region for the development of Italian commerce, navigation, schools, public assistance, and economic action, and along this road the government intended to persevere. Rumors that a coaling station and harbor construction contracts had been granted to non-Italians were unfounded, but "the Italian Government must draw the Sultan's special attention to the grave consequences for Turkey of the granting by her of concessions or privileges in Tripolitania and Cyrenaica which would be opposed to Italian interests, as such a course would oblige the Italian Government to adopt energetic measures." Having thus made the situation clear "all that remains to be done is to quietly resume our work of economic penetration in Tripolitania. This will be the care of the Government."(14)
How did the government happen to be assisted in this care by the Banco di Roma? In the first place, it is worth noting that Romolo Tittoni, Vice-President of the bank's Board of Directors,(15) was a brother of Tommaso Tittoni, Foreign Minister from 1903 to 1909. There were other circumstances still more interesting.(16) The Banco di Roma was known as the bank of the Vatican, and on account of these Papal connections was handicapped in its relations with institutions close to the royal Italian government. Notably, it had been unable to obtain rediscount privileges at the Bank of Italy. Hoping to open this door, it took counsel in high places and finally the prized rediscount privileges were granted. But in return the Banco di Roma promised to interest itself in the development of Italian economic enterprises in Tripoli.(17)
These enterprises took the form of olive presses, an ice machine, a flour mill, an esparto grass press, a soap factory, a machine shop, an establishment for the preparation of ostrich feathers, another for sponges, a quarry---in fact, a whole series of the most diverse undertakings. Eight or nine branches or agencies of the bank were established along the coast and even back in the mountainous hinterland, the first in April, 1907, and all under the direction of Signor Bresciani, who had been a colonial official in Eritrea. Livestock was put out with Arab tribesmen for grazing, and in spite of the opposition of Turkish authorities and legal prohibitions against land ownership by foreigners, the bank succeeded in acquiring possession, if not legal title under native law, of large tracts of land. The total value of the capital put into Tripoli by the Banco di Roma up to 1911 was about four to five million dollars.(18) This included investments in steamships for coastal navigation and for linking Tripoli with other Mediterranean ports. In addition, the Italian government itself established schools and post offices, despite Turkish opposition, sent archeological expeditions, which naturally discovered Roman ruins, and encouraged Italians to initiate undertakings of other sorts. The desert sands of Tripoli were not too enticing, however, and most of the "economic interests" had to be created by the Banco di Roma. The Italian population of the whole region in 1911 was hardly a thousand, and scarcely two hundred of these had come from Italy.(19)
The bank's navigation service, incidentally, was subsidized by the Italian government under contracts of April 23, 1910, and January 27, 1911.(20) This may be regarded as additional compensation to the bank---additional to its rediscount privileges and its patriotic consciousness of national service---for the very considerable losses it must have been bearing on its Tripolitan placements. Indeed, "the deserts of Tripoli and its scanty and indigent Arab population offered meager prospects to the profit-seeking financier,"(21) and any serious profit-seeking by the Banco di Roma must have been done at home, in the Italian treasury. When the actual occupation of Tripoli and the Turco-Italian war finally came along, the bank reaped a rich harvest in contracts for army supplies. It remained the associate of the Italian government in developing the colony, and its land holdings in Tripoli doubtless increased in value with Italian annexation.(22)
What precipitated the actual occupation, for which the way had been so carefully prepared by diplomatic action and economic penetration? The immediate signal was the French seizure of Morocco.(23) Tripoli had been bargained against Morocco with France, and the Agadir crisis brought on by French action somewhat lessened Italy's fear of interference from the powers. Internal opposition to a reform program sponsored by Prime Minister Giolitti, in which the opposition directed its fire on the weakness of policy toward Tripoli in order to attack the government, also spurred Giolitti to action.(24) Turkish nationalism, represented by the Young Turk revolution of 1908, had stiffened the resistance to peaceful penetration in Tripoli. The Turks were not only doing all they could to hold Italy back and to hamper the Banco di Roma, but were endeavoring to interest capital and enterprise from other nations as a counterweight. The nervous excitement of the (inspired?)(25) Italian press whenever it was rumored that a German had bought a parcel of ground, or that an American was to get a state contract, was intense. In Tripoli, as in similar cases elsewhere, the breakdown of pacific penetration quickly brought military action.
Once it had acquired a stake, the bank itself pushed Italian policy forward and had a hand in precipitating the occupation. It not only cultivated the soil in Tripoli, but public opinion at home. A special envoy of the bank, Signor Piazza, wrote articles for the Tribuna in April and May, 1911, which were then published in a book entitled La nostra Terra Promessa (Our Promised Land).(26) The Italian foreign minister, San Giuliano, told the German ambassador on the first of March, 1911, that public opinion was becoming too strong for him to resist, and that, in his opinion, the agitation was being engineered in great part by the bank, which was dissatisfied with results in Tripoli and wanted occupation. "The government finds itself in a very difficult position with regard to the Banco di Roma," wrote the Ambassador, since the government was "mainly responsible for the unprofitable Tripolitan undertaking."(27) Finally---ultimate threat!---the bank let it be known that it was considering negotiations with Austro-German or English financiers for the disposal of its interests in Tripoli .(28)
Out of all these circumstances emerged the ultimatum of September 28, 1911. It was intentionally drafted, says Giolitti in his memoirs, so as to make impossible any long discussion, which had to be avoided at all costs, for the army was ready, and the complacency of the powers might not last.(29) The attitude of the Turkish authorities toward the economic enterprises created by the Banco di Roma afforded one of the many pretexts advanced in this amazing document, which concluded delightfully with the suave request that the Sublime Porte give the necessary orders so that the Italian military occupation "may meet with no opposition." Thus, as a patriotic Italian has written,(30) "inexorable economic and political necessity" led Italy to the conquest of Tripoli.
