GLOBAL ECONOMIC HISTORY A Very Short Introductionetl coring literacy was due to the ‘high-wage, commereial economy. The expans children, Chapter 3 The Industrial Revolution nome growth. The Revolution was not the abrupt that its name suggests but was the result ofthe ransformations ofthe early modern economy discussed in the omic growth achieved inthe century after 1760 (1.5% per year) was very low by the standards of recent ‘growth miracles in which GDP has grown by as much as §-10% per year. However, Britain was continuously extending the world’s technology frontier, and that is always dower going than catching up tothe leader by importing its teehrology, |how countries have grown very rapidly. Moreover, the achievement ofthe Brit ‘continuous growth, so prosperity of today. ‘income compounded tothe mass ‘Technological change was the motor of the Industrial Revolution, ‘There were famous inventions like the steam engi to spin and weave cotton, and the new proeessesto smelt and refine ion and steel using coal instead of wood fies. In adi there were a host of simpler machines that raised labour productivity i unglamorous indusry, engineers extended the 18th-century 1s across the board, The steam engine was sth the invention ofthe railway and the steamship. Power-driven mac mills, was applied “The question is: why was the revolutionary technology invented in, England rather than the Netherlands ar France or, fr that matter, ‘China or India? Cultural and political context twas favourable to “The English constitution has been a model for European i and modern economists alike It was far from democratic: on} 13-54 of the English could vote and even fewer ofthe Scots. M power remained with the Crown ~ in particular, the power to ‘make war and peace, While Parliament had a constitutional ight to refuse funds for war, it never did. “The English eo economic grow ‘madern esonomists, who emphasize restrictions on taxation and rity of property. Parliamentary supremacy actually reverse. While French monarchs claimed to be they could not increase taxes without consent, and it was ic finanees that precipitated the Revolution by is XVI to convene the Ktats générauxin 1789. The peers as raised from excise duties on consumer goods like beer and imports Tike sugar and tobacco. These taxes were borne primarily by 2” - workers, who were not represented i Parliament iament may the absence ofdemocracy, who the event, the English state collected out rvice as much per person asthe French state and spent larger fiction of the coponnal omic growth Mos ofthe mney was spenton the amy nd Theres ost de an ts aha avalablto suntan domestic oder by epee assemblies opposed machinery orn aor o-democracyThe navy as diet to expand Btn empire and promot the eon ial change the power oles be gh hae advanced French prosperity by me Demmanent ate f readiness rates ha : aging or contri it in response to the swing between war and peace. : senepoy ear Growth was also promoted by Parliament’ power to take people’ property against thei wishes. This was not posite in France Indeed, one could argue that France suffered beceuse property was, too secure: profitable irrigation projeets were nottindertaken in Provence because France liad no counterpart tothe private acts of| the British Partiament that overrode property owners opposed to the enclosure oftheir land or the construction of canal oe turmpikes the ‘despotie power of the state that ‘was only avaiable Jntermittently before 1686... vas always avilable thereafter: the 18th In addition, the suocess of natural pl »How much popul ‘question. There a fe method, that is, the view thatthe world inventors ing the Newtonian model. John Harrison, vas more dreetly transformed by socal changes a Mathematica, The mast powerful ‘and the growth of eommerce. They their value B shop keepers, and farmers, and a 20 ture of wages and prices Britain’ cheap-energy economy made it profitable for ims to invent and use the breakthrough technologies ofthe Industrial Rev {In Chapters 1 and 2, we saw that wages in Britun were sufi bigh for most people to eat bread, beef and bee, instead of ‘ubsisting on oatmeal. More tothe point, so faras technology is wages were high relative tothe price of eapital 105, the wage rate relative tothe price of southern England, Franee, and re representative of continental Europe, By the 18th century: however, labour rehitive to capital was ingland than on the ccatinent. Tn the fen cheaper relate to capital in France or Austra, Production was correspondingly less in India, incentive to mechanize os. -— 1880 169016801730 1780 1000 7. Wage relative to price of capital services a exmaa aspe ain, especially on the coal xs, had the cheapest ene labour in Britain than As a result ofthese differences in wages and prices, businesses in gland expensive labour by increasing the use of cheap energy and capital. With moze capital and energy a their disposal, British ‘workers became more productive ~ the secret of economic growth. In Asia and Aftica, the cheapness of labour led tothe opposite result. ‘The cotton industry Erie Hobsbawan famously wrote: Whoever says Industrial cotton was one of the fist industees they turned to China and India had the world largest cotton. |, Madras, and Surat shipped eotton cloth across began to ship cotton ealicoes: h century where they success ‘woo, the principal Esropean textiles Caton ‘vas so sucessful that France prob sport in 1686, and the English restricted its domestie consumption. However, there was a large export market in West Aftica, where cotton cloth was 2 bartered fortes. this market, English cloth competed against Indian cloth, st of eotton spinning, The finer the eotton, the more pin, Wages were so high in England that with India was only possible in the coarsest fabrics compete if machines \were considerable: in 1750, Bengal spun about 85 mi of cotton per year, while Britain managed ony 3 were numerous attempts to mechanize production, James 1. The stakes led the jenny and the w and became the basis of mechanteal spinning fora ily. Thomas Edisonis remark that ‘invent and 99% per le to use where labour was expensive and capital England. Nowhere else were the mi Cotton yam was manufactured in three stages. First, the bales of raw cotton were broken open and the diet and debris removed 2 mona ransmpm ansSecond, the cotton was earded, that i, the strands of eotton were aligned into aloase ben ad called roving by dragging the cotton was sp yee ere akon tb wl and depend wa ued make fine yar, ‘each case, the roving was stretched the spinning wheel made co In strengthen it, and, finally, the yarn was wound on aspindle to send to weavers. I of these stages were mechanized, and, indeed, Richard were laid out ina logical sequence, ode foe the early ct Spinning was the erux of the nce at least the 17308, ive with Indian producers in coarse fine yarn ‘The economies of these machines were similar All of ther saving from mechanical spinning was higher here labour was more expensive. In the 1780s the rate of return, ‘to building an Arkwright mill was 40% in England, 9% in France, and less than 1% in India. With investor expecting & 15% return on fixed eapital, 1 150 Arkwright mills were erected in Britain in the 1780s, in Franee, and ome in India. Rel wg jenny, as was the result - 20,000 jennies were installed ia England on the eve ofthe French Revolution, $00 in France, and none in India, ‘There was no pol integrated series of machines that cut costs by more t Hargreaves’ jenny. Crompton’s mule eut the east of spinning fine yam. Along list ofimventors improved the mleover the next half| century: They econamized on eapital as well as en labour. By the low-wage economies such as Mexico and India. By the tory eotton production began to shit Into the Third World, The steam engine ‘The steam engine was the most transformative technology ofthe Industrial Revolution since it allowed mechanica! power tobe used ‘na wide range of industries well asin railways and ocean ships, ‘Steam power was a spin-off ofthe Scientific Revclution. Atmospheric pressure was one ofthe hot topie of r7th-eentury 35including Galileo, Torrico, von Guericke, Huygens, and Boyle. By the middle of the century, Huygens and von Guericke had shown th nosphere would foree a Denis Papin used this idea to make a crude, proto eA practical engine was completed by Thomas years of experimentati the eylinder. The piston was eonnested to Jed pump as the piston was depressed steam engines burned vast quantities of re energy was cheap. ‘energy requirements and smoothing its detivery of power: Coal 6 ‘consumption per horse power-hour of power was ut from 3 to spread abroad and the whole wold to industralive, Continuing invention ‘The greatest achievement ofthe Industrial Revalution was that the 18th-century inventions were not one-off Lke the ing into a factory stem, weaving was done on hand looms in cottages. This was changed hy the Reverend Edmund Cartwright, who spent decades and wasted his fortune perfecting a power loom. He was inspired by automatons like Jacques di also do useful work? Cartwright thought so and patented his fi ‘as not commerel xever: Many inventors improved itpiecemeal. By the 1820s, the power loom was displacing hand Jooms in England, but they con the 18508, The ower loom greatly increased 2 Senmgony sepa1 invented a high-pressure steam engine ot, Trevithick, Evans) used it to power a land vehiele, but and ore had long been hauled in carts ‘woode es. In the 18th century, iron rails replaced wood, wes were extended. In 1804, Richard Almost 10,000 kilometres of track were 20 years Inte, the network reached 25,000 much of their cargo space on long voyages. The fst routes to shift to steam were: steam engines were reduced, ships could sail the same amount of coal, and the distance toa variety of uses, ide electricity and computers, It takes deeades to develop the potential of GP's, so their contribution to eco _growth takes place long after th ‘ue for steam, As ate as 1800, century ter Neweomen's -steatn power made only & minute contribution tothe ‘economy By the middle of the 1th the 29 senmey asnpagtee sovay bythe French Revol ter 4 Europe bythe aries ofthe Re : 2 the French conquered, lled Europe in their new The ascent of the rich : 7 tucianas ea tionalized tax system, univers secula primary education and the extension of modern seeonda:y schools, es and universities, the promoton of scientific hs empire cso modernized ir institutions. Napoleon’ wars prevented these ceforms from ‘having immediate effect, but, after Waterloo, Europe was ripe for Between 1819 and ain’ eat start meant -compete those on the it, and, second, the technology of the Indus vas inappropriate for continental e {ined the innovation ‘world’s technologieal leader, but rst among equals! ince have had a strategy to em package of development ‘ut in the USA (see Chapter 6) and then promot in Europe by Friedrich List, German who lived in the US. built on Napoleon’ institutional revol imperatives: create alarge national market by al 40 o es‘rane he every ac provid sims xp ‘mass education to speed the adoption and gy. This development strategy helped rope to catch up to Beitain, idle Ages, it was divided nits. The number was in 1815. Prussia, Germany i good example. In {nto hundreds of independer ‘German states gradual traffis and ereated a common external tariff to i manufactures. The economic union formed the b ted in 1871 (German Empire e “The integration of markets was reinforced by building railways. "Nuremberg to Firth in 1835, just fve years ater the Liverpool to ine railways were lid outin the 1850s “Bas founded in 1822 to promote industrial wantres. German private banks began fobiler, established in France in 1852 to nance raiways and industry, was a giant step forward, a ‘The following year, it spun off the Bank of Darmstadt, winch relationships with industrial Tong-term funds a. interest. Often these loans were secured with mortgages on {industrial property, and bank representatives served as directors ial firms. These banks financed thegreat expansion ‘of German industry between 1880 and the First World Was. ‘processing 47,000 tons of raw cotton. A modern iron industry was aso esta 1870, Charooal was the faol used to smelt and purify iron before Charcoal was replaced by coke, «refined form of ‘of the most famous innovations ofthe Industeial ion, This technique was put into practice by Abrabam, Darby atthe Coalbrookdale charcoal smelting on the continent, however, for wountries ike eee oumoneseny,furnace proved superior tothe averter in the production of plates, sheets, and structural shapes, and became the dominant technology “The so-called open hear Bessemer snd a Frenchman, There was no international lg there. ‘While Western Europe had overcome its most glaring technological deficiencies by 1870, production Ievels on the continent were stil far behind those of Britain. This changed by a ‘the Fist World War, however, as both Western Earope and the USA overtook Britain in manufacturing, In 1880, Britain produced 28% of the worlds manufactures Germany, and Belgium together produced ox ‘three continental countries had out-paced Britain a their share ‘ose t 23% and Britain’ share dropped to 4%, Atthe same time, the North American share grew fron 15% to:33% of world ‘manufacturing. Britain did best in the eattontestle industry, processing 869,000 tons of raw cotton per ye against the USA which reached ‘weaker in heavy industry. In 1850-4, Britain smeled 3 tons of pig ion versus 245,000 in Germany and asout 500 the USA. By 1910-13, Britain vas producing 10 Germany smelted 15 million, and the USA 24 ‘The changes in manutucturing produetion had important politieal implications. n the middle ofthe 19th century, Britain was the “workshop of the world sroduetion of manufactures by increasing their ex ‘the changes in trade performance were wi toits empire, andthe value of empire demonstrated in that way led to seramble for colonies ‘mong the industrial economies. Germany's overtaking of Britain, manufacture, mationa tensions in ‘The Anglo-German trade rvalty stoked the approach tothe First World Wa. tal Europe and North Ameriea overtake output between 1870 and 1913, b in technological competence The US. eed, surpassed Britain, becoming the world’s technological : however, important discoveries were Trom the the difference between rial is striking lobal perspective, wh ‘oun worse,elm Maybach, They were Germans. ish auto in 1895 and inves clectre starter. The first company onganized express ‘manufacture autos was Panhard et Levassor in Fra ide engine. Renault and so forth. The people in all of ivesity programmes in these areas reaped economic benefits, pre-eminent example before the 1990s. Its ists wor many Nobel Prizes. Key technical engines, starting ystems, {for which he received a Nobel Prize is one o far frm unique Hitler, the Second World War, and post-wai German science. Th vas directed towards the military during the Cold War, but many'of the projects brought benefits to the economy asa whole. Funding was also directed towards mi and socialsciences ‘This funding underpinned Americ’ global leadership. The macro-economic character of technological progress Most R&D has bees earvied wages of rich countries induced them to invent products that economizec on labour by ncomes of rich countries ‘A consequence of Western Europe and the USA deing all of the world’ R&D is that there sa world ‘product slates into more output per worker, Moreover, the ”40000 30000 20000 10000 (GDP per worker (1985S) ° 0000 40000 «60000 -=—««80000 Capital per worker (19888) (A 1985_@ 1990 ‘5. World production fanetion ‘lationship flattens out at high level of capital per worker because ofthe law of diminishing returns: more and more capital yields 1990 than it did in 1965. 1 in other words, The ebange in 4“ ‘output per worker for the USA from 1820 to 1990, The trajectory of the USAS development fllows space today: Figure 10 shows this for Italy, and F Germany. There are some idiosyner USA, as befits the words techrolgial leader, hs usualy got bit more output from its apital and labour than other countries, while Germany, perhaps because ofthe importarce of banks, has accumulated more capital per worker but the tment ° ‘20000-40000 ‘0000 Capital per worker (19658) Aisss «1900 — USK 9. US growth trajectory ‘20000 0°§ sono ~ . £ en ; 20000 s E 10000 5 rs ° 20000 40000, 60000 anne: Capital per worker (19858) A 196s © 7950 — tal] 10, Halian gronth trajectory 40000 * T ° = g ° e B s0000 z E “3° 3 5 20000 ae = 10000 8 © ° ‘20000 40000 ~—=«g0000—=—«0000 Capital per worker (19858) Export success in most de ‘contury technology. ‘make the same point. Why is Peru dl 1990, capital per worker in Peru was $8,796 and output per worker was 86,847. These figures are almost 0 capital costs, £428 of capital, and GDP per a5 India early in the 191 ‘The evel repeats. Todays poor the elevator. They have low wages and high ‘make do with archaietechnelogy and low ‘ad inereased only et had reached $3,295 ~ putting roam,al cman more dif inthe 19th century when the USA became the Chapter 5 The great empires ‘Tothe east of Europe were empires. The Ottoman Turks under different dynasties, lasted for thousands of years, Much of India was governed by the Mughal emperors in the 17th and 18th centuries. Japan had an emperor from the Srd century CE ‘onwards, and parts of South Asia such as Cambodia and Thailand hnad advanced states from an early date, China wes the greatest empire ofall and had existed for thousands of yrs, Europeans have been aware ofthe riches of Asia for millennia, eryone accepted that the East was prospercus, however 1e classieal economists Adam Smith, ‘Marx. They agreed that Europe was had better prospeets for growth, Each explained China’ hypothesized backwariiness own pet theory = for |