Haute couture dresses are hand-sewn by craftsmen, as they were centuries ago. First growth wines are produced by methods established in the Middle Ages, though there is much new chemical knowledge in their contents. Yet both product groups, now with vast ancillary industries worth hundreds of billions, were the product of mid-19th century industrialization; without it they would not exist. By understanding the Industrial Revolution’s spread beyond steam engines, we can better understand potential sources of new wealth today.
France’s premier global reputation as a producer of luxury goods dates from a particular period in its history: the Second Empire (1852-70). Partly the reputation’s emergence at that time was a matter of technology; railways, telegraphs and greater prosperity created new market possibilities available for exploitation. However, it was also a result of intelligent policy at the top, both economic policy and the “marketing” that the best leaders do for their country’s industries. Emperor Napoleon III, unlike his uncle, had a relatively sophisticated understanding of free-market economics, although he also had the typically French belief that economic success depends on direction from a centralized state. Nevertheless, fostering and marketing the nation’s economic capabilities and attempting central planning are two different things, and Napoleon III stayed firmly on the right side of that divide.
Both Napoleon III and his wife Empress Eugénie also understood promotion. He encouraged a succession of highly successful Expositions, along the lines of Britain’s 1851 Great Exhibition, which highlighted French products and capabilities. His grandiose rebuilding of Paris led by Baron George-Eugène Haussman (1809-91) may have been expensive, but it was carried out with the greatest possible architectural taste, thereby promoting Paris as a leading world city. The glorious Palais Garnier opera house symbolizes Haussman’s rebuilding and Napoleon III’s rule; its architect Charles Garnier christened its wedding-cake architecture “style Napoleon III” — a fitting tribute to the Imperial couple.
With Napoleon III’s encouragement (he thought she would like it, since it was close to her home country of Spain) Eugénie developed Biarritz as an upmarket winter resort, building a palace there which become the town’s Hotel Palais, home to crowned heads and film stars ever since and thereby a marketing triumph for the nascent French tourism industry.
Eugénie’s main contribution to French economic success (apart from her sound conservative instincts restraining Napoleon III’s “Napoleonic” radical ones) was her promotion of Charles Frederick Worth’s dressmaking business. The English-born Worth had trained as a dressmaker in London and Paris; when he set up his own Paris salon in 1858 his wife Marie Vernet Worth was immensely helpful in promoting his creations to the “haute monde” at parties. Princess Pauline Metternich, the Austrian ambassador’s wife, introduced him to Eugénie and the rest was history. Eugénie was a dream client – she was said to have taken 250 Worth creations with her to the opening of the Suez Canal in 1869 – and by her promotion of Worth’s creations throughout Paris society and internationally she helped him establish Paris as the global center of haute couture, a position that has brought France immense revenues and prestige from that day to this.
French dressmaking had been internationally celebrated since Louis XIV’s time, but Worth’s pre-eminence together with the period’s technological developments of the railroad and the telegraph, gave France a premier position in the global fashion market that it never lost. When Worth’s house dressed Mrs. Alice Vanderbilt as “Electric Light” for the Vanderbilt ball of 1883, he demonstrated not one but two new technologies to the New World. Over time, Worth’s successes in the dressmaking field led to French leadership in ancillary businesses such as fragrances and handbags, leading to today’s LVMH Moët Hennessy Louis Vuitton SE with a market capitalization of $400 billion.
More important than Biarritz, Haussman’s Paris or even haute couture, was the 1855 establishment of four Bordeaux wines as the “first growths” that could be sold at premium prices to a worldwide clientele. French wines, especially those from Bordeaux, had been drunk by wealthy Britons and other Europeans since mediaeval times. Château Haut brion for example was first exported to England in 1663, where the diarist Samuel Pepys described it as a “sort of wine called Ho Bryan that hath a good and most particular taste I never met with.”
The Bordeaux Wine Official Classification of 1855 was developed for the Paris Exposition of that year, and listed Château Lafite, Château Haut Brion, Château Latour and Château Margaux as the four “first growths” of superlative quality. A fifth vineyard, Château Mouton, was of equivalent quality but was not included because the vineyard had recently been bought by Nathaniel Rothschild, a son of the great Nathan Mayer Rothschild and thus unacceptable, being both British and Jewish. (Lafite would be bought by his French uncle James de Rothschild in 1868, but Mouton was only included as a fifth “first growth” in 1973.) The “first growth” system displayed at the 1855 Paris Exposition established the best Bordeaux wines as the world’s finest and gave rise to the wine snobbery that has enriched France ever since.
Champagne also, whose annual consumption had risen from 300,000 bottles in 1800 to 20 million in 1850, gained further from Perrier-Jouët’s invention of the dry Brut variety in 1846 and the railroad connection to Reims in 1854, and was thus able to share in France’s new-found wine supremacy. German, Italian and Spanish wines, however good, were always a step behind French wines at the top of the market.
Napoleon III’s reign saw important advances in other areas of the French economy. The Alsace region became a hotbed of technological advances, with family companies leading the way, as the region’s business-oriented leadership produced a 19th century equivalent of today’s Silicon Valley. That capability would be lost with the German occupation after 1871, as 8% of the population and much of its business leadership chose to emigrate either to France or to Switzerland. Paris retailing also saw important advances, as Aristide Boucicault founded Le Bon Marché in 1852, taking advantage of new communications technologies to provide a department store with low fixed prices, deep global sourcing and a full range of goods for Paris and visiting consumers.
Napoleon III’s reign ended in disaster; the combination of Eugénie’s dress bills and Haussman’s building costs left France unable to field an army competitive with that of Kaiser Wilhelm I. Yet his uncle’s reign had also ended in military debacle, after a somewhat shorter period of success. At least it can be said on behalf of the nephew that unlike his economically illiterate uncle, he left France immensely richer and happier, with economic capabilities that have continued to enrich it to this day. The glory of Marengo, Austerlitz and Wagram should to a rational historian fall well short of the nephew’s achievements.
With the exception of the Alsace development nexus, France’s economic advances of the Second Empire were dependent upon new technology but caused primarily by clever marketing of the fresh capabilities that new technologies had brought with them. When seeking today opportunities to which new technological advances such as Artificial Intelligence (AI) may lead, it is wise to seek the same kind of businesses. Not AI itself, which now seems a product of intellectual brute force and gigajoules of power output, but embryonic companies in quite different areas whose operations have been enabled by the new AI capabilities.
Napoleon III and Empress Eugénie would today be very successfully running a fund that found and invested in those opportunities.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)