At a deeper level, it is important to understand why Britain was, in the terms of Figure 1.1, a low λ and low saving economy such that the intersection of the Solow- and Schumpeter-relationship lines was at a fairly low level of technological progress but nevertheless Britain was able to become the Industrial Revolution pioneer. In part, the answer is that British institutions and policies were good by the standards of the time rather than by those of the twentieth or twenty-first centuries. Moreover, it seems that Britain enjoyed transitory advantages conducive to its initial success.
Thus, comparisons of Britain and France from an endogenous-innovation perspective strongly suggest that Britain was much better placed in the late eighteenth century. Despite France’s larger population, Britain had access to the largest free trade area in the world and a much better integrated domestic market (Berrill, 1960). Britain was twice as urbanized as France, which reduced the costs of acquiring and developing knowledge (Bairoch, 1991). Britain had a superior expertise in using and assimilating the vital coal-based technologies (Harris, 1976) and there is little doubt that unproductive rent-seeking absorbed far more talent in eighteenth-century France than in Britain (Root, 1991).
Mokyr (2009) develops a similar argument for British primacy. He suggests that what was needed to generate an industrial revolution was the right combination of useful knowledge produced by scientists, engineers and inventors to be exploited by a supply of skilled craftsmen and an institutional environment that provided good incentives for entrepreneurs. Britain was better placed in this regard than any of its Northern European rivals. Central to all this was Britain’s embrace of the Enlightenment which promoted both better institutions and an appropriate research agenda whose results were effectively disseminated – in terms of Figure 1.1, a higher λ economy than other late eighteenth-century economies.2
Nevertheless, from an endogenous-growth perspective the British economy still had many weaknesses. Accordingly, TFP growth was modest although by the 1830s it was still well ahead of the rate achieved in the United States which averaged 0.2 per cent per year during 1800–1855 (Abramovitz and David, 2001). The size of markets was still very small in 1820 when globalization proper was yet to begin (O’Rourke and Williamson, 2002) and real GDP in Britain was only about 6 per cent of its size in the United States a century later (Maddison, 2010). The costs of invention were high since the contributions that scientific knowledge and formal education could make were modest (Mokyr, 1990). Intellectual property rights were weak since the legal protection offered by patents
was doubtful until the 1830s and the cost of taking out a patent was extremely high until 1852 (Dutton, 1984) and the value of patent rights relative to the size of the economy was much smaller than in the twentieth century (Sullivan, 1994). Even if Britain had less rent-seeking than France, rent-seeking in the law, the bureaucracy, the church and the military remained a very attractive alternative to entrepreneurship as the evidence on fortunes bequeathed attests (Rubinstein, 1992).
Obtaining the potential gains from innovation could be problematic, as is reflected by the problems of the textile and engineering sectors. In particular, eliciting sufficient effort from the workforce was a significant problem of industrial relations to which solutions had to be devised. In cotton textiles, the answers were found through embracing craft unionism and committing to fixed piecework rates through collective bargaining. This amounted to conceding job control to senior workers and using payment by results rather than managerial authority to underpin the effort bargain.
In the short term this delivered higher productivity; for example, the introduction of the 1829 piece- rate list raised labour productivity at M’Connel and Kennedy by 15 per cent (Huberman, 1991). In the longer term, craft control entailed problems of adjusting to changes in circumstances such as new technological opportunities and conflicts related to trials of bargaining strength ensued, notably in engineering highlighted by the famous lockout of the Amalgamated Society of Engineers in 1852 (Burgess, 1975).
Table 2.8 reports levels of investment in physical and human capital in the early nineteenth century which are very low by later standards. This was clearly not a time of high college enrolment and the highly educated were to be found in the old professions not science and engineering.
Investment, especially in equipment, was a small proportion of GDP. This may partly reflect the modest capital requirements of the early industrial technologies but is also a symptom of the deficiencies of the capital market at a time of very restrictive company and banking legislation (Harris, 2000). In particular, at times of major government borrowing for military purposes such as during the Napoleonic wars, the Usury Laws meant that the private sector faced severe credit rationing and crowding out (Temin and Voth, 2013).
Table 2.8 Aspects of broad capital accumulation, 1801–1831 (%)
Investment/GDP 6.7
Non-residential investment/GDP 5.0
Equipment investment/GDP 1.3
Adult literacy 54
Primary school enrolment 36
Years of schooling (number) 2.0
University students/population 0.04
Civil engineers/employed 0.01
Traditional professions/employed 0.88
Sources: Crafts (1995), (1998) updated for new GDP estimates in Broadberry et al. (2015).
The limitations of British growth potential at the time of the Industrial Revolution compared with the leading economy 200 years or even 100 years later are reflected in the contributions to productivity growth made by steam in Britain in contrast to electricity and Information and Communication Technology (ICT) in the United States, as reported in Table 2.9. Steam’s contribution in Britain was smaller and took much longer to materialize. Indeed, these estimates indicate that already by 2006 the cumulative productivity gain from ICT had matched that of steam over the whole period to 1910. The price of steam power fell much less rapidly than for the more recent technologies implying that rate of improvement of the technology was much slower. It seems reasonable to conclude that over time leading economies have become much better at exploiting general purpose technologies. The reasons are likely to be found in a superior level of education and scientific knowledge, improvements in capital markets, government policies that support research and development, and thus a greater volume of and higher expected returns to innovative effort.
Table 2.9 GPTs: contributions to labour productivity growth (% per year) Steam (UK)
1760–1830 0.01
1830–1870 0.30
1870–1910 0.31
Electricity (USA)
1899–1919 0.40
1919–1929 0.98 ICT (USA)
1974–1995 0.77
1995–2004 1.50
2004–2012 0.64
Memorandum item: real price falls (%)
Steam horsepower
1760–1830 39.1
1830–1870 60.8
Electric motors (Sweden)
1901–1925 38.5
ICT equipment
1970–1989 80.6
1989–2007 77.5
Notes: Growth accounting contributions include both capital deepening from use and TFP from production.
Price fall for ICT equipment includes computer, software and telecoms; the price of computers alone fell much faster (22.2% per year in the first period and 18.3% per year in the second period).
Sources: Growth accounting: Crafts (2002), (2004a) and Byrne et al. (2013).
Price falls: Crafts (2004a), Edquist (2010) and Oulton (2012).