The three stages of colonialism are:
(1) First Stage: Monopoly Trade and Plunder:
The first stage had two basic objectives. In order to make trade more profitable indigenously manufactured goods were to be bought cheap.
For this competitors were to be kept out, whether local or European. Territorial conquest kept local traders out of the lucrative trade while rival European companies were defeated in war. Thus, the characteristic of the first stage was monopoly of trade.
Secondly, the political conquest of the colony enabled plunder and seizure of surplus. For example, the drain of wealth from India to Britain during the first stage was considerable. It amounted to two to three% of the national income of Britain at that time. Colonialism was superimposed on the traditional systems of economy and polity. No basic changes were introduced in the first stage.
(2) Second Stage: Era of Free Trade:
The interest of the industrial bourgeoisie of the metropolis in the colony was in the markets available for manufactured goods. For this it was necessary to increase exports from the colony to pay for purchase of manufactured imports. The metropolitan bourgeoisie also wanted to develop the colony as a producer of raw materials to lessen bourgeoisie also wanted to develop the colony as a producer of raw materials to lessen dependence on non-empire sources.
Increase of exports from the colony would also email it to pay for the high salaries and profits of merchants. The industrial bourgeoisie opposed plunder as a form of appropriation of surplus on the ground that it would destroy the goose that laid the golden eggs.
The colony was to be integrated with the world capitalist economy and the mother country. Capitalists were allowed to develop plantations, trade, transport, mining and industries. The system of transport and communications was developed to facilitate the movement of massive quantities of raw materials to the ports for export. -Liberal imperialism was the new political ideology. The rhetoric of the rulers was to train the people in self-government.
(3) Third Stage: Era of Finance Capital:
The third stage saw intense struggle for markets and sources of raw materials and food grains. Large scale accumulation of capital in the metropolis necessitated search for avenues for investment abroad. These interests were best served where the imperial powers had colonies. This led to more intensive control over the colony in order to protect the interest of the imperial power.
The third stage often did not take off. Colonialism had so wrecked the economies of some colonies that they could hardly absorb any capital investment. In many colonies the older forms of exploitation continued. In India, for example, the earlier two forms continued, even in the third stage.