Banks were still for the most part a novelty, except perhaps in parts of Italy (Venice and Genoa, among others), the UK and to a lesser extent the USA; however, none of the countries had a proper central bank with monopoly over note issue and a formal lender-of-last-resort function. Securities market regulation existed in few countries, but was highly inadequate and rarely enforced. No country had income tax except as an ‘emergency’ measure during wars (e.g., Britain for the period 1799-1816, Denmark during the Napoleonic Wars).
In addition, none of the NDCs had social welfare institutions or labour regulations on working hours, child labour, or health and safety at work. The only exceptions were one or two minimal and ineffective laws regulating child labour in a few textile industries in the UK (the 1802 law and the 1819 law), and the restriction of the legal working age to nine and above in Austria, in a law introduced in 1787.
By 1875, with the progress of industrialization, the NDCs experienced considerable institutional development, but the quality of their institutions was still well below what we expect from the developing countries of today at comparable levels of development (see section 3.3.3 for this comparison).
None of these countries had universal suffrage, although a few such as France, Denmark and the USA – did, theoretically at least, achieve universal male suffrage; however, although it was subsequently reversed in the USA. Even in these countries, however, some basic institutions of democracy, for example secret balloting, were missing and electoral fraud was widespread. Bureaucracies had only just begun to adopt key modern features like meritocratic recruitment and disciplinary measures, but even then only in a few pioneer countries such as Prussia and Britain (but not, for example, in the USA), while the spoils system was still widely used in many countries.
Most NDCs may have instituted patent laws by this time (Switzerland and the Netherlands being the notable exceptions), but the quality of this legislation was poor. Protection of foreigners: intellectual property rights was particularly bad, partly because there was no international intellectual property rights system in place. For example, despite being a strong defender of an international patent system, the USA still did not recognize foreigners’ copyrights, and many German firms were still busy producing counterfeit English goods.
Generalized limited liability may have come into being in a number of countries by this time (Sweden, Britain, Portugal, France and Belgium), but even these countries did not have regulations regarding the auditing and information disclosure procedures of limited liability companies. It had been barely three decades since the UK had established a relatively ‘modern’ bankruptcy law, thereby allowing some chance of a ‘fresh start’ to bankrupts (1849), and the USA still did not have a federal bankruptcy law. Competition laws were still non-existent, despite the rapid rise of large firms and trust activities (by this time, Article 419 of the French Penal Code of 1810 had fallen into disuse).
Banks were still new institutions in many NDCs, a number of. which - notably Italy, Switzerland and the USA – still did not have a central bank. Even in countries which did nominally have central banks (e.g., Portugal, Sweden and Germany), their effectiveness was often highly limited because they did not have monopoly over note issue. Banking regulation was still a rarity, and there existed widespread ‘cronyistic’ lending and frequent bank failures. Even the UK, the country with the most developed securities market, did not have proper securities regulation, with the result that insider trading and price manipulation abounded in securities markets. A permanent income tax, first introduced in Britain in 1842, was still a novelty.
During this period, none of the NDCs had modern social welfare schemes, the only exception being the industrial accident insurance introduced in Germany in 1871. Institutions regulating child labour existed in a number of countries, such as the UK, Prussia and Sweden, but were usually very poorly enforced. In many countries, the employment of relatively young children, those between the ages of nine and 12, was still permitted. Other countries, for example Belgium, Italy and Norway, had no regulation whatsoever on child labour at this time. There was still no limit imposed on adult male working hours in any of the NDCs, although some countries passed legislation restricting female working hours; even then these were set at a relatively high 10-12 hours per day. Workplace safety laws, if they existed, were virtually unenforced.
C. 1913 – The beginning of industrial maturity
Even as late as 1913, when the richest of the NDCs reached the level of the richer of today’s developing countries (Brazil, Thailand, Turkey, Mexico, Colombia), from whom ‘world standard’ institutions are expected, the then-developing NDCs had low-quality institutions by these standards.
Universal suffrage was still a novelty – it existed only in Norway and New Zealand – and even a genuine male universal suffrage in the sense of ‘one man one vote’ was not common. For example, the USA and Australia had racial qualifications, while the Germans had different numbers of votes according to property, education and age. Secret ballots had only just been introduced in France (1913); Germany still did not have them at all. Bureaucratic modernization had progressed quite significantly, especially in Germany, but a spoils system was still widespread in many countries (in particular the USA and Spain); meanwhile, bureaucratic professionalism was only just emerging even in countries like the USA – it had been barely three decades since even a minimal degree of competitive recruitment was introduced in the US federal bureaucracy in 1883.
Even in the UK and the USA, corporate governance institutions fell miserably short of modern standards. The UK had introduced compulsory auditing for limited liability companies just over a decade earlier (1900), but due to a loophole in legislation, the balance sheets companies provided did not have to be up-to-date. In both countries, full disclosure to investors on public stock offering was still not compulsory. Competition law was non-existent: although it had been addressed in the USA in the 1890 Sherman Act, it was not until the 1914 Clayton Act that the country had an antitrust law worthy of the name. Europe had to wait for another decade before it got its first competition law, in the shape of Germany’s cartel law of 1923.
Banking continued to be underdeveloped – branch banking, for instance, was still not permitted in the USA. Banking regulation was still patchy in most countries. Central banks were becoming a common institution, but their quality was still far behind what we would expect these days. In the USA, for example, central banking had barely been born (1913) and covered only 30 per cent of the banks in the country. The Italian central bank was still fighting for monopoly over note issue. Insider trading and stock price manipulation was still not properly regulated. Neither the UK nor the USA, the two countries then with the most-developed securities markets, had securities regulation (they had to wait until 1939 and 1933 respectively). Income tax was still a novelty. The USA introduced it only in 1913 after two decades of political fights and legal wrangling, while Sweden, despite its extensive use of income tax in subsequent periods, still did not have one at all by this point.