During the late nineteenth and early twentieth century, economic growth in the United States was faster than in Britain and by 1913 the United States had established a clear lead in the level of real GDP per person. Table 3.1 reports the well-known estimates of Maddison (2010), which suggest that the American lead over the United Kingdom in 1913 was about 8 per cent and that overtaking by the United States occurred in the Edwardian period. Recent reworking of the data, in particular to obtain more accurate Purchasing Power Parity (PPP) exchange rates, by Woltjer (2013) indicates that these estimates probably understate relative American performance, such that the United States may have caught Britain up by about 1880 and was about 25 per cent ahead by 1913. It is important to recognize that major European economies, such as France and Germany, did not overtake Britain in this period;
on the contrary, Table 3.1 reports that they were still well behind the United Kingdom in 1913, although they had enjoyed some catch-up growth since 1870. Over this period, the French and German growth rates were about 0.5 percentage points higher than Britain, but even so, the gap between French and German levels of real GDP per person and that of the United States widened.
American overtaking was based on superior productivity performance. The estimates reported in Table 3.2 show that labour productivity growth in the United States was superior to that in the United Kingdom across the whole of the private sector during the forty years after 1870. Although much discussion has concentrated on comparisons of manufacturing, we see that the productivity growth gap was much larger in a number of other sectors and superior American performance in services was more important in the overall picture. It should also be noted that, over the period 1871–1911 as
a whole, British labour productivity growth was a bit faster than the rate achieved in the first half of the nineteenth century and American outperformance owes much more to acceleration in the United States than slowdown in the United Kingdom.
Table 3.2 Sectoral labour productivity growth before the First World War (% per year)
UK, 1871–1911 USA, 1869–1909
Agriculture 0.6 1.0
Industry 0.9 1.5
Manufacturing 1.1 1.3
Construction 0.1 2.0
Utilities 1.4 4.0
Services 0.4 1.1
Transport and communications 0.7 2.5
Distribution −0.3 1.3
Finance and services 0.9 1.4
Government 0.5 0.0
Whole economy 0.8 1.5
Source: Broadberry (2006).
This point is reinforced by the growth accounting estimates reported in Table 3.3. These show that after the Civil War productivity growth in the United States surpassed anything that Britain had achieved during the Industrial Revolution and was far in advance of its own pre-Civil War performance. Initially, this represented post-war recovery but, by the end of the nineteenth century, had moved to a new level in the context of the so-called Second Industrial Revolution. During the early decades of the twentieth century, the United States would be in the forefront of the development of the most important new technologies, including aviation, the internal combustion engine, mass production, electricity and petrochemicals (Mowery and Rosenberg, 2000). This American prowess
in technological progress is reflected in Table 3.3 in a significant acceleration in TFP growth to a pace far above that seen in the First Industrial Revolution.1 This acceleration was not matched by the United Kingdom and, indeed, TFP growth seems to have been very disappointing in the immediate pre-First World War period, as was stressed by Feinstein et al. (1982), who identified this as a period that could be described as a ‘climacteric’.
Table 3.3 Contributions to labour productivity growth (% per year)
Education
Capital per hour
worked TFP
Labour productivity growth
United Kingdom
1856–1873 0.2 0.8 1.2 2.2
1873–1899 0.3 0.4 0.5 1.2
1899–1913 0.3 0.4 −0.2 0.5
1913–1924 0.3 1.3 0.6 2.2
United States
1800–1855 0.0 0.2 0.2 0.4
1855–1871 0.0 0.5 −0.4 0.1
1871–1890 0.0 0.8 1.0 1.8
1889–1909 0.3 0.5 1.3 2.1
Note: For United Kingdom estimates are for the whole economy and for the USA are for the market sector. Labour productivity growth is measured in terms of GDP per hour worked.
Sources: United Kingdom: Feinstein et al. (1982), Matthews et al. (1982); United States:
Abramovitz and David (2001) and Kendrick (1961) with education derived using Morrisson and Murtin (2009) for 1889–1909.
The notion of a climacteric is of a sharp reduction in trend growth and, as proposed by Feinstein et al. (1982), a cessation of TFP growth between 1899 and 1913. It should be accepted that the
existence of a climacteric is not decisive with regard to the growth-failure hypothesis. For example, it has been suggested that a hiatus in British productivity growth resulted from a waning of technological opportunity in a pause between general-purpose technologies with the steam age petering out before the electricity era took over (Lipsey et al., 1998). On the other hand, a constant trend rate of growth could represent a failure if acceleration was possible, as was underlined by Crafts et al. (1989). On balance, however, establishing that there was a climacteric in TFP growth would strengthen the hand of those arguing for a growth failure and would imply that American overtaking owed a good deal to a slowdown in British as well as a speeding up of American growth.
So was there a late Victorian/Edwardian climacteric?
Table 3.4 displays the estimates from which Feinstein et al. (1982) inferred a climacteric. They based their analysis on endpoint calculations of growth rates between business-cycle peaks using the
‘compromise’ measure of GDP, which is a geometric mean of the expenditure, income and output measures.2 Solomou and Weale (1991) suggested the ‘balanced’ measure, namely, weighting these alternatives according to their reliability rather than equally, which dilutes the slowdown a bit. The more important point is to note that what Table 3.4 reveals is one business cycle with strong growth in the 1890s followed by a very weak growth cycle between 1899 and 1907 and then a bounceback.
This suggests investigating whether the differences between the various periods are statistically significant, and it turns out that generally they are not. A more sophisticated analysis based on time- series econometrics does show a decrease in trend growth after 1899 but of only about 0.1 percentage points per year (Crafts et al., 1989).
Table 3.4 Growth of real GDP and TFP, 1856–1937 (% per year)
GDP TFP
Compromise Balanced Compromise Balanced
1856–1873 2.2 0.8
1873–1882 1.9 1.7 0.6 0.4
1882–1889 2.2 1.6 0.9 0.2
1889–1899 2.2 2.2 0.8 0.8
1899–1907 1.2 1.4 −0.3 −0.1
1907–1913 1.6 1.7 0.4 0.5
1924–1929 2.6 2.4 1.2 1.0
1929–1937 2.0 2.0 0.6 0.6
Note: Education included in TFP growth.
Sources: 1856–1913: Compromise estimate from Feinstein et al. (1982) and balanced estimate from Solomou and Weale (1991); 1924–1937: Compromise estimate from Matthews et al.
(1982) and balanced estimate from Sefton and Weale (1995).
Those who have supported the idea of a climacteric have sometimes supposed that manufacturing productivity growth faltered as the impetus from steam power waned and old industries, with weak productivity performance, retained too high a weight in the structure of the economy. These ideas are misleading, although it is, of course, true that some steam-intensive sectors such as coal and cotton had experienced much higher productivity growth earlier in the nineteenth century. Investment in steam power remained very strong as technological progress continued to reduce its cost, and its contribution to industrial productivity growth peaked in the decades before the First World War, as can be seen in Table 3.5. Overall, the hypothesis of a serious climacteric is not convincing.
Table 3.5 Steam power growth and British industrial output and labour productivity growth (% per year)
1800–1830 1830–1850 1850–1870 1870–1910 Rates of growth
Steam HP 5.2 5.7 6.3 4.8
Steam HP/worker 2.6 4.1 5.0 3.5
TFP in steam power 0.06 1.2 3.5 1.7
Contributions to output growth
Steam capital 0.17 0.18 0.35 0.53
TFP in steam power 0.03 0.10 0.13 0.12
Total 0.20 0.28 0.48 0.65
Contributions to labour productivity growth
Steam capital deepening 0.09 0.13 0.28 0.39
TFP in steam power 0.03 0.10 0.13 0.12
Total 0.12 0.23 0.41 0.51
Memorandum item (%)
Steam engine income share 3.3 3.2 5.6 11.1
Source: Crafts and Mills (2004).