Why did the industrial revolution occur so late in human history?
It’s not simply because we had to wait for the science. The steam engine, for example, was invented in the first century AD. But it was another 18 centuries before it became widely applied. Why the wait?
One possibility is that the industrial revolution required huge stocks of coal, which only became accessible in the late 18th century. Another possibility, advanced by Gregory Clark, is that the revolution required people to have the right attitudes - hard work, patience, ingenuity, respect for property - and these took centuries to evolve.
However, this new paper suggests, though doesn’t explicitly articulate, another possibility - that inequality held back the economy.
Roughly speaking, there are two sorts of technical progress. One is the introduction of new products. This is helped by inequality - because this implies that there’s a pool of wealthy customers for the new goods.
But there’s another sort - process innovation, the introduction of new techniques that allow goods to be produced more cheaply for a mass market. And this form of innovation is retarded by inequality. After all, if the majority of people are on the breadline, or working in subsistence farming, producers have little incentive to finds ways of making new goods cheaper, because people still won’t be able to afford them.
In this sense, process innovation - which is what the industrial revolution was - requires there to be a middle-income market, which in turn requires at least a little equality.
Now, I’ll grant that it’s tricky to test this hypothesis against the evidence. But two things suggest that equality matters for process innovation.
First, Japan has for long been a relatively egalitarian nation. But it has also for years been the home of process innovation, at least in manufacturing, pioneering lean production and just-in-time methods.
Secondly, the mid-20th century was, for the west, a golden era of process innovation. Mass production and Taylorism allowed once-luxury items - cars, refrigerators, TVs - to become cheap enough to be owned by relatively poor people. But the mid-20th century was also a period of rising equality. Coincidence? Or is it instead that growing equality incentivized firms to invest in mass production methods?
As I say, it’s just a suggestion than inequality retarded the industrial revolution. (Of course, there‘s no reason why the explanation be mono-causal). But if there’s any truth in this, then it implies that the cost of inequality, historically speaking, has been colossal. Delaying the transition from zero growth to 2% per capita growth by 100 years means denying people a seven-fold improvement in their real incomes.
It’s not simply because we had to wait for the science. The steam engine, for example, was invented in the first century AD. But it was another 18 centuries before it became widely applied. Why the wait?
One possibility is that the industrial revolution required huge stocks of coal, which only became accessible in the late 18th century. Another possibility, advanced by Gregory Clark, is that the revolution required people to have the right attitudes - hard work, patience, ingenuity, respect for property - and these took centuries to evolve.
However, this new paper suggests, though doesn’t explicitly articulate, another possibility - that inequality held back the economy.
Roughly speaking, there are two sorts of technical progress. One is the introduction of new products. This is helped by inequality - because this implies that there’s a pool of wealthy customers for the new goods.
But there’s another sort - process innovation, the introduction of new techniques that allow goods to be produced more cheaply for a mass market. And this form of innovation is retarded by inequality. After all, if the majority of people are on the breadline, or working in subsistence farming, producers have little incentive to finds ways of making new goods cheaper, because people still won’t be able to afford them.
In this sense, process innovation - which is what the industrial revolution was - requires there to be a middle-income market, which in turn requires at least a little equality.
Now, I’ll grant that it’s tricky to test this hypothesis against the evidence. But two things suggest that equality matters for process innovation.
First, Japan has for long been a relatively egalitarian nation. But it has also for years been the home of process innovation, at least in manufacturing, pioneering lean production and just-in-time methods.
Secondly, the mid-20th century was, for the west, a golden era of process innovation. Mass production and Taylorism allowed once-luxury items - cars, refrigerators, TVs - to become cheap enough to be owned by relatively poor people. But the mid-20th century was also a period of rising equality. Coincidence? Or is it instead that growing equality incentivized firms to invest in mass production methods?
As I say, it’s just a suggestion than inequality retarded the industrial revolution. (Of course, there‘s no reason why the explanation be mono-causal). But if there’s any truth in this, then it implies that the cost of inequality, historically speaking, has been colossal. Delaying the transition from zero growth to 2% per capita growth by 100 years means denying people a seven-fold improvement in their real incomes.
Interesting ... however the hypothesis overlooks that the forces behind innovation and establishing capital intensive production (the industrial revolution) were for the most part those with wealth or connections to sources of capital in the unequal society ... it didn’t happen spontaneously from a lessening of inequality. Moreover the industrial revolution drove equality by increasing income for the formerly subsistence agricultural workers to create discretionary consumers (relative to subsistence). Then the industrial revlotion drove education for it own needs which further propels equality.
Posted by: Andrew | December 21, 2009 at 04:41 PM
And what was inequality at the beginning of the Industrial Revolution? Maddison says the Gini was around 0.5.
Current UK market Gini is around 0.5. Adjusted for tax and benefits it's around 0.34.
So, perhaps we have too little inequality to support an Industrial Revolution of the Green type that everyone says we need?
Posted by: Tim Worstall | December 21, 2009 at 05:54 PM
The 1st century "steam engine" you cite wasn't much more than a useless toy and that they lacked the methods of scientific prcatice was probably the reason why it was never improved into a useful device. The Scientific Revolution occurred in the 16th and 17th centuries. The industrial revolution began soon afterward.
Posted by: Ted | December 21, 2009 at 06:08 PM
The other question is why it occurred in England and one possible answer provides further anecdotal evidence for your hypothesis. The disolution of the monasteries spread wealth and power relatively widely. By the eighteenth century the descendants of the beneficiaries were literaly running the country following the glorious revolution. Edward VI's grammar schools were another egalitarian move that supported the changes instigated by his father.
Posted by: Andrew Kelly | December 22, 2009 at 09:11 AM
The availability of coal changed everything. The crucial time and place is the 17th century around Newcastle. There was demand from other areas of the country, as wood became more scarce. The supply came from coal seams to the west of Newcastle, on hilly ground where the seams came to the surface. This required the development of wooden waggonways, which implied dozens of innovations to allow waggons to run along wooden rails on quite steep gradients to be transferred to keel boats and then to bigger boats at the mouth of the Tyne. This suggests a class of skilled craftsmen who innovated as they worked.
I have doubts whether the dissolution of the monasteries and the new grammar schools were key factors. Henry VIII had a habit of taking existing institutions and rebranding them under his own name. Monasteries were involved in a lot of practical activities, and were involved in small-scale coal-mining in the Middle Ages. Grammar schools didn't necessarily develop practical skills. It's the skilled workers, who found ways of getting loaded chauldrons of coal to run downhill safely on wooden rails, who were the key.
Posted by: Guano | December 22, 2009 at 01:09 PM
Andrew,
Perhaps the joint stock company made relying just on the brains of those few brought up in luxury no longer a constraint.
Posted by: reason | December 22, 2009 at 03:37 PM
You reference Gregory Clark, but leave out one of his most salient points: In Britain just before the industrial revolution, there was a positive correlation between economic and reproductive success: The rich had more children than the poor. Combined with the principle of primogeniture (the entire estate going to the first son), this resulted in *downward* social mobility: Well-educated younger sons of aristocrats had to find employment in roles that in previous centuries had been beneath them.
This of course ties into process engineering: Now you had well-nourished and well-educated young men taking a critical look at things on the shop floor, and coming up with cunning new ways of doing things.
These days we do downward social mobility by proxy: Taxing the wealthy to pay for the education of the poor. If (and it's yet to be proved) this is less effective than genuine downward mobility, we need to consider whether (a) there is more to education than can be conferred in a classroom (illiterate parents can't read bedtime stories, for example) or (b) genetics play a significant role in determining who becomes wealthy and who does not.
Posted by: Neil | December 23, 2009 at 05:18 PM
What about having more really good wars generating the need for progress. And maybe aquiring by the same means the capital goods to fund progress.
Posted by: john malpas | December 23, 2009 at 10:39 PM
And a lot of it reflects a switch from bank deposits to securities; foreigners “other investments” in the UK, http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.
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http://www.watchgy.com/rolex-submariner-c-8.html
Posted by: replica rolex watches | December 27, 2009 at 04:14 PM
Interesting post ! But there is one question in mind that is what was inequality at the beginning of the Industrial Revolution? And how it was handled ?
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