ISBN-10:
0521793041
ISBN-13:
9780521793049
Pub. Date:
09/28/2007
Publisher:
Cambridge University Press
Exceptionalism and Industrialisation: Britain and its European Rivals, 1688-1815

Exceptionalism and Industrialisation: Britain and its European Rivals, 1688-1815

by Leandro Prados de la Escosura
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ISBN-13: 9780521793049
Publisher: Cambridge University Press
Publication date: 09/28/2007
Pages: 352
Product dimensions: 5.98(w) x 8.98(h) x 0.94(d)

About the Author

Leandro Prados de la Escosura is Professor of Economic History at Universidad Carlos III, Madrid, and Prince of Asturias Distinguished Visiting Professor at the University of Georgetown.

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Exceptionalism and Industrialisation
Cambridge University Press
0521793041 - Exceptionalism and Industrialisation - Britain and Its European Rivals, 1688-1815 - Edited by Leandro Prados de la Escosura
Excerpt



Introduction: Was British industrialisation exceptional?

Leandro Prados de la Escosura


Between 1688 and 1815 Great Britain entered into sustained competition with its European rivals while simultaneously initiating an irreversible process of economic modernisation known as the Industrial Revolution. At the time of the Treaty of Vienna, Britain had achieved a hegemonic position in terms of naval power, international commerce, agricultural efficiency, industrial production, fiscal capacity and advanced technology. In 1820 the British enjoyed the highest per capita income in Europe (one-third higher than the French and one-fifth more than the Dutch) and its primacy persisted down to 1914 (Prados de la Escosura, 2000).

For more than a century the British Industrial Revolution has been perceived, in Max Hartwell's (1971) words, as one of the great discontinuities in history. It exhibited fast growth rates for aggregate economic activity that stemmed from increasing rates of capital formation, but above all from technological innovation (Feinstein, 1978). As depicted by David Landes (1969), British industrialisation was the paradigm for modern economic growth, so the diffusion of its best practice techniques of production and institutions became the yardstick for the assessment of the success or failure of subsequent national development.

The last two decades have witnessed a systematic challenge to the British paradigm. Nowadays, the idea of industrialised Britain's superiority above other regions of Europe based on more efficient institutions, cultural values and economic performance is seriously questioned. The publication a quarter of a century ago of Patrick O'Brien and Caglar Keyder's book Economic Growth in Britain and France, 1780-1914: Two Paths to the Twentieth Century represented the departure from a long-standing tradition that goes back to nineteenth-century economics, and to post-World War Ⅱ development economists and economic historians (Rostow, 1960; Landes, 1969; Hartwell, 1971, among others). Simply being first to experience modern economic growth, asserts O'Brien, does not necessarily imply the achievement of the 'best practice', and no optimal path for growth can be identified in Britain's pioneering path and pattern of industrialisation.

More recent research on European development has pointed to the fact that Britain did not fit the modes of accumulation and resource allocation that prevailed in continental Europe (Crafts, 1985). Nicholas Crafts and Knick Harley (1992) point out that Britain was a country growing at a slow pace in per capita terms while experiencing a deep structural transformation and localised technological innovation. This precocious structural change paralleled by an acceleration in both output and population growth allowed Britain to maintain average income per head while feeding a much larger number of people. The stylised facts presented by Crafts (1985: 62-3) depict Britain's industrialisation as virtually unique among historical cases of economic development in terms of low dependence on agriculture (both as an employer of resources and a contributor to output), high urbanisation, openness and low investment in both human and physical capital. Private consumption in industrialising Britain defies the suggestion, so often expressed in the literature on economic development, of a generational sacrifice as the price to be paid for economic progress. Public consumption in eighteenth-century Britain was, in turn, below that of nineteenth-century Europe except at time of war.

Specific facets of British industrialisation that make it unique and exceptional include:

  • slow pace of growth accompanied by deep but prolonged industrial transformation,

  • distinctive technological change that allowed society to escape from the Malthusian trap,

  • favourable natural endowments including coal, mineral ores and fecund soils,

  • high exposure to foreign goods and ideas,

  • low investment demand derived from limited opportunities to invest,

  • weak dependence on agriculture,

  • high rural-urban migration,

  • high defence expenditure as a precondition for economic success in overseas trade and commerce,

  • uniquely permissive institutions for growth.

All these features taken together portray Britain's Industrial Revolution as a singular case study of economic development and question the relevance of a diffusion model for the spread of British industrialisation across Eurasia.

Nevertheless, the now persuasive contention that British industrialisation was an unique phenomenon does not imply that each of its features was unmatched by present-day developing countries or by the nineteenth-century economies of continental Europe. For example, the accepted view of eighteenth-century Britain as a developing country where savings systematically exceeded investment so that the country became, consequently, a net foreign investor at levels of income at which most nations are still net debtors, has been put to an empirical test by Elise Brezis (1995). She rejected this view. Her data suggest that, as would be expected of a developing economy, industrialising Britain had an investment demand larger than its domestic supply of savings and foreign capital played a part in British industrialisation. Her view has, however, been disputed by Norris Nash (1997) and Javier Cuenca Esteban (2001). The latter reinstated the view that, after 1776, Britain became a net creditor.

A second, and more important, issue is the role of technological change in the advance of the British economy. Computations of total factor productivity (TFP) growth, as the residual obtained by subtracting growth contributed by land, labour and capital (in which each factor's growth rate is weighted by its share in national income) from the aggregate rate of economic growth, are taken as a measure of efficiency or (disembodied) technological change. The results from these exercises suggest that TFP provided not more than one-fifth of British economic growth during the First Industrial Revolution (Crafts and Harley, 1992; Antrás and Voth, 2003), a proportion that increases slightly with the new growth accounting approach that takes embodied technological change into account (Crafts, 2003). Factor accumulation prevailed over efficiency gains. Such a statement is at odds with McCloskey's (1981) dictum that 'ingenuity rather than abstention' was the dominant element in British industrialisation. This unique feature of the British Industrial Revolution stems from comparisons with twentieth-century experience (Crafts, 1998). A closer examination of the evidence assembled in Crafts (2000) reveals that, although the finding of slow TFP growth is confirmed when the comparison is carried out with western European economies during the Golden Age (1950-73), this is not the case when Britain is compared with the economies of the United States in the nineteenth century, or with East and South Asian countries in the 1960-90s period, or with China during the last decade. In all these historical experiences TFP contributed less than a quarter to the overall rate of growth. The implications are a) that slow (fast) TFP growth cannot be equated to low (high) TFP contribution to output growth, and b) that the suggestion of a unique TFP behaviour during the British Industrial Revolution should be reconsidered. Meanwhile, the position that growth appears to derive largely from increased factor inputs rather than from improvements in their efficiency during the first stages of industrialisation can be maintained. Once industrialisation is well under way (and when, perhaps, growth rates are no longer at peak levels), TFP plays a more significant role. Why would this pattern appear? Is it because improving efficiency implies a more complex learning process than allocating additional capital and labour to production, or is it just the result of a composition effect due to the fact that, in the early stages of industrialisation, traditional economic sectors exhibiting lower TFP growth are predominant and, hence, condition aggregate factor productivity performance? Crafts (2003) points out that steam, like other major technologies, had a mild impact in its early years, as it took time to realise its potential. Crafts also argues that small market size, low R and D investment and extended rent-seeking activities all help to explain the reduced role of TFP in British growth during the Industrial Revolution (Crafts, 1996).

All in all, the gradualist approach to the Industrial Revolution cannot evade the fact that Britain moved ahead of continental Europe and even those regions that had already found, in Gerschenkron's words, substitutes for the prerequisites of modern industrialisation. By 1851 Britain was recognised as the 'workshop of the world' and the achievements of industrial Britain as compared to the rest of Europe by the mid-nineteenth century were reflected in:

  • higher income per capita (coupled with a widening inequality over previous decades), with levels often above those that obtain in developing countries at the present time,

  • higher standards of welfare, as measured by life expectancy or literacy, than most of Western Europe,

  • greater civil and political liberties,

  • confined rent-seeking activities,

  • an urbanised society,

  • more rapid diffusion of technical knowledge,

  • better integrated commodity and factor markets,

  • higher shares of world trade in manufactured goods and services.

An attempt to rehabilitate the Industrial Revolution emerges from the recent work by Berg and Hudson (1992) and Cuenca Esteban (1994, 1997), among others, and finds support in the contributions of global historians, such as Kenneth Pomeranz (2000), who argues that the discontinuities in growth associated with the Industrial Revolution were more pronounced and that technological and organisational changes were more pervasive and significant than revisionists are ready to accept. Natural endowments (including accessible deposits of coal at home and extensive land overseas) plus defence expenditure (which led to the acquisition of naval and military power) are, for global historians, crucial elements behind British success.

When was Britain's superiority within Europe acquired? What differentiated Britain from its rivals and led on to the First Industrial Revolution? Were endogenously created institutions behind British growth and technical progress what eventually promoted overseas expansion? These are some of the questions explored in this volume, which includes twelve essays in comparative history that will elaborate upon the unique path to modernisation followed by Britain.

The first part of the book, comprising parts I to III, looks at the immediate determinants of British success. Part I investigates the origins of British primacy, which can traced back into the early modern period, when Britain appeared as a relative latecomer that experienced intensive and pervasive Smithian growth before the rest of Europe. The welfare of London workers, for example, was already above those of other capital cities, including Paris and Amsterdam, by 1600 and the gap widened over time (Allen, 2001). In chapter 1, 'Britain's economic ascendancy in a European context', Robert Allen concludes that the exceptional British wages and per capita income levels maintained despite exceptionally rapid population growth emanated from high levels of urbanisation and agricultural productivity. Allen underlines suggestions made by O'Brien that the basic impetus to change in agriculture came from the extension of proto-industrial and urban economies, rather than a peculiar set of 'capitalist' institutions. In his view, the keys to Britain's early success were the artisans and merchants who made the new draperies - a crucial sector in the 'industrious revolution' - yeomen farmers who actively responded to shifts in demand by increasing yields and Britain's effective mercantilist state, which defeated rival powers and seized a world empire to the benefit of its trade and industry.

The role of trade in the rise of Britain to a hegemonic position in the early nineteenth century has been extensively discussed by economic historians, who have opposed a Smithian vent-for-surplus interpretation (that is: trade providing employment opportunities for otherwise idle resources) (O'Brien and Engerman, 1991) to Ricardian comparative advantage (improving resource allocation through trade) (Thomas and McCloskey, 1981; Harley, 1994) as explanations for the British experience. The question of whether colonies overseas made a substantial, if qualitative, contribution to the emergence of disparities between Britain and other European powers (the Netherlands, France and Spain) is central to an explanation for Britain's unique performance during the 'long' eighteenth century and has been recently addressed by Acemoglu, Johnson and Robinson (2002). They suggest that expansion overseas promoted (pace Braudel) political leverage among commercial groups with interests in the colonial trade and thereby contributed to pro-business institutional changes in maritime and parliamentary countries such as Britain and the Low Countries.

The distinctive and permanent role played by Britain's trans-continental and imperial trade in promoting economic growth as compared to domestic forces is stressed by Javier Cuenca Esteban in chapter 2, 'Comparative patterns of colonial trade: Britain and its rivals'. He finds that a substantial share of British export growth was exogenous to the home economy, in the sense that exports were sold to Britain's more prosperous trade partners with independent sources of wealth, and increased at the margins of her pre-existing networks of commodity flows and payments. In particular, Cuenca Esteban argues for the significance of 'windfall' British exports to the Iberian empires that significantly added to autonomous expenditure by the United States on British manufactures, particularly during times of war.

Part II addresses the connections between agriculture and industrialisation. A large labour productivity differential between Britain (and the Low Countries) on the one hand and Western European economies on the other, has been traced back to the seventeenth century and persisted up World War Ⅰ (Allen, 2000; O'Brien and Prados de la Escosura, 1992). By 1600 Britain was at a similar level of output per worker as France (and Spain), but by 1700 it was one and a half times higher than French labour productivity and by 1750 almost twice the French level (Allen, 2000). Why such a gap appeared is discussed in chapter 3, 'European farmers and the British "agricultural revolution"', by James Simpson, who argues that differences in the rate of capital formation provide a powerful reason for Britain's superior performance, and greater incentives existed for investment in British agriculture between 1650 and 1750. Large, capital-intensive farms in England (and also northern France) were more efficient in utilising factor inputs than either the small family farms in north-western Europe or the large estates of Mediterranean regions. In addition, more intense rural-urban migration and relatively lower physical and institutional barriers to trade led to a greater commodity and factor market integration and, consequently, to larger efficiency gains in Britain.

In chapter 4, 'Precocious British industrialisation: a general-equilibrium perspective', Nicholas Crafts and Knick Harley examine the structural transformation over 1770-1840 in response to changes in factor endowments and productivity in the context of an open economy. With the help of a computable general equilibrium model, they analyse the implications of a shift from traditional, small-scale family farming, prevailing in continental Europe, to capitalist farming. Their model and data indicate that such a move enabled Britain to raise labour productivity, to release labour and, at the same time, to promote industrialisation. Crafts and Harley conclude that agriculture's conversion to capitalist farming was a key feature of the national economy's exceptional employment structure.

The extent to which capitalist farming explains British unique allocation of resources can also be assessed with the help of Chenery and Syrquin's (1975) exposition of patterns of development. Britain deviated from the 'European norm' (that is, the predicted behaviour of the average European economy at similar per capita income and population levels), as it allocated less labour and derived a lower share of output from agriculture while the opposite happened in industry and services (Crafts, 1985). Crafts and Harley's new simulations provide the counterfactual shares of employment and output for agriculture and industry that could flow from the absence of capitalist farming, and they also allow for its impact on the openness of the British economy. When their counterfactual estimates (table 4.6) are placed beside those predicted by the 'European norm' for the levels of income per head achieved by the British economy (Crafts, 1985: 62-3), the degree of coincidence is striking. The implication of this rigorous exercise in cliometrics is that the early move to capitalist farming appears to be the prime explanation for Britain's exceptional resource allocation.

Another and surprising result derived from the model is the hypothetical increase by almost one-fifth in the capital stock (and by 8 per cent in per capita income) that could counterfactually have occurred in the event of an even higher level of protection for domestic agriculture that would have resulted in the contraction of agricultural imports in 1841 to the level of 1770 (see column 3 of table 4.2). The notion that an increase in the relative size of the agricultural sector could provide extra incentives for capital accumulation appears counter-intuitive and seems to be in contradiction with the process of industrialisation associated with the introduction of capitalist farming. The explanation for the paradox offered by Crafts and Harley is that the decline in the share of wages in national income that would accompany an expansion of agriculture under protection would have been paralleled by an increase in the share of income accruing to property. Given that savings rates by workers were negligible, the outcome could be overall higher savings and investment rates. An increase in landowners' wealth would indeed be a feature of a more rural economy. However, higher wealth cannot necessarily be identified with an increased capital stock, as the latter only includes reproducible assets and excludes unimproved land (and even less with an increase in the productive capital, that is, when dwellings are excluded). Nonetheless, if the results from Crafts and Harley's counterfactual were accepted as they stand, investment rates would increase and narrow the British deviation from the 'European norm'.

Part III examines Britain's exceptional inventiveness and innovation and its determinants, in particular, the two macro-technologies that together first revolutionised industrial production: the network of coal, iron and steam power and the mechanisation of cotton textiles. In chapter 5 Christine MacLeod addresses 'The European origins of British technological predominance' and the paradox of why it was that Britain, a peripheral nation in terms of European technical progress, took the technological lead. She suggests that the paradox cannot be solved by looking at Britain in isolation, for its Industrial Revolution drew on techniques accumulated across Europe (Mokyr, 2002). Population density reduced (pace Boserup) transaction costs, facilitating the exchange of ideas and promoting competition. In that context, the returns to innovation were growing and inventions were attracted from Europe and, as an outcome, new products and ideas were successfully adapted and improved.

In the case of the cotton industry, mechanisation occurred as an outcome of European technological developments which came on stream at a time when only the British had a modern cotton industry. Patrick O'Brien's analysis of innovation in that industry is deepened by James Thomson's 'Invention in the Industrial Revolution: the case of cotton' (chapter 6). He argues that the improvement in technical abilities of Lancashire's cotton workers, the larger supply of different sorts of raw cotton and a better understanding of their qualities for different uses, in conjunction with the great increase in the demand for labour, played a major role in the explanation of the sequence of 'macro-inventions' in cotton textiles.

Although the British government offered patents for invention, they were expensive and hard to enforce, and the state's main contributions to inventive activity can be located in the combination of tariffs and prohibitions on imported cotton goods from India and in the expansion and effectiveness of the Royal Navy, which safeguarded commerce overseas. Thus, the emergence of large-scale textile production in the metropolis can be closely associated with Asian trade conducted by the East India Company and public expenditure in sea power.

In Britain a long-standing scarcity of wood coexisted with rich and accessible coal deposits and other ores (especially iron). MacLeod argues that coal abundance was fortuitous and Pomeranz (2000) has pointed to coal as a felicitous ingredient of British supremacy. Historical evidence suggests, however, that coal should be represented as an endogenous rather than an exogenous phenomenon. Other regions of the world (including India, China and Eastern Europe) also possessed regular coal deposits. Only the British exploited the new source of energy intensively and systematically. Like mineral resources in the United States in the nineteenth century (David and Wright, 1997), the exploitation of natural endowments on a large scale was an endogenous phenomenon that resulted from Britain's own economic progress.

Nevertheless, coal had both land- and labour-saving effects in substituting for wood and agricultural land (Wrigley, 1988). Moreover, overcoming the constraints of an organic economy was a prerequisite for the occurrence of the First Industrial Revolution (Wrigley, 1994: 28). Overseas expansion provided Britain with additional primary produce and the economy's ability to import resource-intensive goods helped to relax the natural resource constraint that restrained the development of Asian regions; this is a distinctive feature of British industrialisation.

The relative shortage of wood and building timber and the abundance of coal triggered an early transition to coal-burning technologies, while iron replaced timber in construction. Britain was actually the first country to substitute coal for the scarce resource of charcoal for smelting, refining and processing metals on a large scale. This early eighteenth-century British breakthrough in metallurgical technology was closely observed in continental Europe but the transfer to hard-coal technology in smelting, refining and processing iron did not take hold in iron-producing regions of continental Europe before the nineteenth century. Why were they unable to adopt British technology? Why did technological differences persist up to the mid-nineteenth century? These are questions that David Landes raised in his classic work The Unbound Prometheus (1969). In chapter 7, 'Continental responses to British innovations in the iron industry during the eighteenth and early nineteenth centuries', Rainer Fremdling provides an answer by analysing the evolutionary transition from techniques using vegetable fuel to those using mineral fuel, a process which transformed the British iron industry from a small and costly sector at the end of the seventeenth century into a large and efficient industry and the world's largest exporter by the end of the Napoleonic Wars. These results confirm Wrigley's view (1988) that growth was carried forward by the early changeover to a fossil fuel energy base.

The second part of the book deals with institutional and geopolitical determinants of Britain's exceptional industrialisation and concentrates on the roles played by financial and monetary institutions (part IV) and by the Royal Navy (part V) in facilitating modern economic growth.

For more than a century after the Peace of Westphalia Europe's modern nation states experimented with financial and monetary regimes to fund their engagements in warfare and colonisation overseas. Larry Neal notes in chapter 8, 'The monetary, financial, and political architecture of Europe, 1648-1815', that institutional innovations that relied on private financial markets (e.g., British and Dutch institutions) proved their superiority and governments refrained from interfering in capital markets, a difficult restraint, especially in times of war.

How did the British government manage to raise the stock of national debt with each successive war and, then, to raise sufficient taxes to service the public debt? Part of the answer is, according to Neal, provided by the increasing value of public debt as an insurance against the risks incurred in other markets. Widening opportunities for risk sharing contributed to British success.

The steady rise of central government taxation in Britain throughout the eighteenth century, already one of the highest-taxed economies in Europe, stands in sharp contrast with the historical experience of, for example, France, where the proportion of commodity output extracted in taxation remained unaltered and the tax revenue per head failed to increase significantly in real terms throughout the 'long' eighteenth century (Mathias and O'Brien, 1976; White, 2001). France never mobilised sufficient financial resources to defeat Britain at any time during the second Hundred Years War. Special interest groups constrained the ability to finance war by obstructing reforms to improve fiscal efficiency in Bourbon France and Spain. In Britain, conversely, privileges and fiscal exemptions and regional local tax quotas were removed and a universal taxation was the norm. In chapter 9, 'Towards the comparative fiscal history of Britain and France during the "long" eighteenth century', Richard Bonney argues that public opinion remained sceptical or hostile to Bourbon financial and fiscal policy and distrustful of government contracts. Furthermore, the efficiency of the fiscal system was discernibly lower in France than in Britain, and the French domestic credit market was less sophisticated and enjoyed much less government support. Such striking contrasts lend credence to the view that only governments backed by strong representative institutions were able to extract revenues and to borrow in substantial amounts of money for warfare (Hoffman and Norberg, 1994). A conclusion that is confirmed by Forrest Capie in Chapter 10, 'Money and Economic Development in Eighteenth-Century England'. His analysis reveals that a well established monetary economy and a sophisticated financial system along with trust and the rule of law were already in place before the industrialisation accelerated in the late eighteenth century.

Nonetheless the unsolved question remains, How were the tax increases approved by a parliament dominated by landowners? Mathias and O'Brien (1976) suggest that the state relied increasingly upon indirect taxes. O'Brien (1988) observes that excises (that is, indirect taxes on domestic consumption goods) were levied on price-inelastic and income-elastic goods, and paid mostly by the 'middling' social groups, while the upper classes, well represented in parliament, diversified their portfolios into public debt. Excise taxes and a regressive fiscal tool, were required to service that long-term debt, without which the British government could not have raised funds for the finance of the wars (Brewer, 1989; O'Brien, 2001). Capie adds that the tax collection was facilitated by the extensive circulation of cash and credit in Britain, in contrast to France's persistent shortage of money.



© Cambridge University Press

Table of Contents

List of tables and figures; List of contributors; Acknowledgements; Introduction: was British industrialisation exceptional? Leandro Prados de la Escosura; Part I. The Origins of British Primacy: 1. Britain's economic ascendancy in a European context Robert C. Allen; 2. Comparative patterns of colonial trade: Britain and its rivals Javier Cuenca Esteban; Part II. Agriculture and Industrialisation: 3. European farmers and the British 'agricultural revolution' James Simpson; 4. Precocious British industrialisation: a general-equilibrium perspective N. F. R. Crafts and C. Knick Harley; Part III. Technological Change: 5. The European origins of British technological predominance Christine MacLeod; 6. Invention in the Industrial Revolution: the case of cotton James Thomson; 7. Continental responses to British innovations in the iron industry during the eighteenth and early nineteenth centuries Rainer Fremdling; Part IV. Institutions and Growth: 8. The monetary, financial and political architecture of Europe, 1648-1815 Larry Neal; 9. Towards the comparative fiscal history of Britain and France during the 'long' eighteenth century Richard Bonney; 10. Money and economic development in eighteenth-century England Forrest Capie; Part V. War and Hegemony: 11. Naval power: what gave the British naval superiority? Daniel A. Baugh; Conclusions: Institutional change and British supremacy, 1650-1850: some reflections Stanley L. Engerman; Laudatio patritii: Patrick O'Brien and European economic history Gianni Toniolo; References; Index.

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