Unit 2 Technology and incentives

2.12 How good is the model? Economists, historians, and the Industrial Revolution

Why did the Industrial Revolution begin where and when it did: in the eighteenth century, on an island off the coast of Europe?

In this unit, we have presented one explanation. In the emerging capitalist economy in Britain, relatively high wages and cheap coal were incentives to develop and implement new technologies that raised labour productivity, and Britain’s dominant position in the world economy provided both low-cost raw material inputs and markets for the increased output.¹

Our model explains one part of the story. But it has left out scientific, cultural, and sociological causes that scholars think were also important.

• The scientific revolution and the diffusion of technical knowledge. Joel Mokyr has stressed Europe’s scientific revolution, and the transformation of elite scientific knowledge into practical advice and tools for engineers and skilled artisans who used it to build the machines of that time.²
• The rule of law and other political institutions. David Landes emphasizes the political and cultural characteristics of nations as a whole, such as political stability and the rule of law. He suggests European countries pulled ahead of China because the Chinese government was too powerful and stifled innovation, and because Chinese culture at the time favoured stability over change.³
• New individual values. For Gregory Clark, personal values—such as the importance of hard work and savings as a sign of good character—were the key to success under the new institutions. These values spread and promoted increases in labour productivity, during what Clark calls ‘The industrious revolution’.⁴

Other countries followed different trajectories, so it is unlikely that a single model could explain all of the hockey sticks. For example, Germany could not compete with Britain in textiles, but the government and large banks played a major role in building steel and other heavy industries. Japan outcompeted Britain in some Asian textile markets, benefiting from the isolation it enjoyed from its sheer distance from earlier starters (which in those days meant weeks of travel). Japan selectively copied both technology and institutions, introducing the capitalist economic system while retaining traditional Japanese institutions, including rule by an emperor, which lasted until the Japanese defeat in the Second World War.

As we discussed in Unit 1, the Industrial Revolution did not lead to economic growth everywhere. Because it spread slowly across the world, it also implied a huge increase in income inequality between countries. Looking at economic growth around the world in the nineteenth and twentieth centuries, David Landes once asked: ‘Why are we so rich and they so poor?’⁵

By ‘we’, he meant the rich societies of Europe and North America. By ‘they’ he meant the poorer societies of Africa, Asia, and Latin America. Landes suggested, a little mischievously, that there were two answers to this question:

One says that we are so rich and they so poor because we are so good and they so bad; that is, we are hardworking, knowledgeable, educated, well governed, efficacious, and productive, and they are the reverse. The other says that we are so rich and they so poor because we are so bad and they so good: we are greedy, ruthless, exploitative, aggressive, while they are weak, innocent, virtuous, abused, and vulnerable.

If you think that the Industrial Revolution happened in Europe because of the Protestant Reformation, or the Renaissance, or the scientific revolution, or the development of superior private property rights, or favourable government policies, then you are in the first camp. If you think that it happened because of colonialism or slavery then you are in the second. But Landes’ question is really a false dichotomy. We know that scientific and practical creativity and the rule of law were essential to the process, as was the cotton and sugar produced by enslaved peoples and the markets in the British colonies.