Sunday, April 2, 2017

Traditional Views, Revisionist Views, and Counter-revisionist Views on the Industrial Revolution

Following up on my post on our paper about the Industrial Revolution , I thought some more context would be useful. The traditional view of the Industrial Revolution was that the availability of resources of coal, iron ore, and earlier water power in Britain were crucial factors that lead to the Industrial Revolution occurring in Britain and not elsewhere. Of course, these weren't sufficient - industrialization didn't happen in China - and so institutions also seemed to be important. But in recent years economists have emphasized the role of institutions and downplayed the role of resources more and more. This is what I call the revisionist view. Tony Wrigley and Robert Allen are key exponents of a counter-revisionist view, reemphasizing the role of resources, though not ignoring the importance of institutions. Our paper is a mathematical and quantitative exploration of the counter-revisionist view.

Economists and historians are divided on the importance of coal in fueling the increase in the rate of economic growth in the Industrial Revolution. Many researchers (e.g. Wilkinson, 1973; Wrigley, 1988, 2010; Pomeranz, 2000; Krausmann et al., 2008; Allen, 2009, 2012; Barbier, 2011; Gutberlet, 2012; Kander et al., 2013; Fernihough and O’Rourke, 2014, Gars and Olovsson, 2015) argue that innovations in the use, and growth in the quantity consumed, of coal played a crucial role in driving the Industrial Revolution. By contrast, some economic historians (e.g. Clark and Jacks, 2007; Kunnas and Myllyntaus 2009) and economists (e.g. Madsen et al., 2010) either argue that it was not necessary to expand the use of modern energy carriers such as coal, or do not give coal a central role (e.g. Clark, 2014).

Wrigley (1988, 2010) stresses that the shift from an economy that relied on land resources to one based on fossil fuels is the essence of the Industrial Revolution and could explain the differential development of the Dutch and British economies. Both countries had the necessary institutions for the Industrial Revolution to occur but capital accumulation in the Netherlands faced a renewable energy resource constraint, while in Britain domestic coal mines in combination with steam engines, at first to pump water out of the mines and later for many other uses, provided a way out from the constraint. Early in the Industrial Revolution, the transport of coal had to be carried out using traditional energy carriers, for instance by horse carriages, and was very costly, but the adoption of coal-using steam engines for transport, reduced the costs of trade and the Industrial Revolution spread to other regions and countries.

Pomeranz (2001) makes a similar argument, but addresses the issue of the large historical divergence in economic growth rates between England and the Western World on the one hand and China and the rest of Asia on the other. He suggests that shallow coal-mines, close to urban centers together with the exploitation of land resources overseas were very important in the rise of England. “Ghost land”, used for the production of cotton for the British textile industry provided England with natural resources, and eased the constraints of the fixed supply of land. In this way, England could break the constraints of the organic economy (based on land production) and enter into modern economic growth.

Allen (2009) places energy innovation center-stage in his explanation of why the industrial revolution occurred in Britain. Like Wrigley and Pomeranz, he compares Britain to other advanced European economies of the time (the Netherlands and Belgium) and the advanced economy in the East: China. England stands out as an exception in two ways: coal was relatively cheap there and labor costs were higher than elsewhere. Therefore, it was profitable to substitute coal-fuelled machines for labor in Britain, even when these machines were inefficient and consumed large amounts of coal. In no other place on Earth did this make sense. Many technological innovations were required in order to use coal effectively in new applications ranging from domestic heating and cooking to iron smelting. These induced innovations sparked the Industrial Revolution. Continued innovation that improved energy efficiency and reductions in the cost of transporting coal eventually made coal-using technologies profitable in other countries too.

By contrast, Clark and Jacks (2007) argue that an industrial revolution could still have happened in a coal-less Britain with only "modest costs to the productivity growth of the economy" (68), because the value of coal was only a modest share of British GDP, and they argue that Britain's energy supply could have been greatly expanded, albeit at about twice the cost of coal, by importing wood from the Baltic. Madsen et al. (2010) find that, controlling for a number of innovation related variables, changes in coal production did not have a significant effect on labor productivity growth in Britain between 1700 and 1915. But as innovation was required to expand the use of coal this result could make sense even if the expansion of coal was essential for growth to proceed. Both Clark and Jacks (2007) and Madsen et al. (2010) do not allow for the dynamic effects of resource scarcity on the rate of innovation. Tepper and Borowiecki (2015) also find a relatively small direct role for coal but concede that: “coal contributed to structural change in the British economy” (231), which they find was the most important factor in raising the rate of economic growth. On the other hand, Fernihough and O’Rourke (2014) and Gutberlet (2012) use geographical analysis to show the importance of access to local coal in driving industrialization and urban population growth, though Kelly et al. (2015) provide contradictory evidence on this point. Finally, Kander and Stern (2014) econometrically estimate a model of the transition from biomass energy (mainly wood) to fossil fuel (mainly coal) in Sweden, which shows the importance of this transition in economic growth there.

Our new paper shows that the switch to coal in response to resource scarcity is a plausible explanation of how an increase in the rate of economic growth and a dramatic restructuring of the economy could be triggered in a country with a suitable environment for innovation and capital accumulation. We argue that in the absence of resource scarcity this shift might not have happened or have been much delayed.

References

Allen, Robert C. 2012. "The Shift to Coal and Implications for the Next Energy Transition." Energy Policy 50: 17-23.

Barbier, Edward .B. 2011. Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation. Cambridge University Press: Cambridge and New York.

Clark, Gregory. 2014. “The Industrial Revolution.” In Handbook of Economic Growth, Vol 2A, edited by Philippe Aghion and Steven Durlauf, 217-62. Amsterdam: North Holland.

Clark, Gregory, and David Jacks. 2007. “Coal and the Industrial Revolution 1700-1869.” European Review of Economic History 11: 39–72.

Fernihough, Alan, and Kevin Hjortshøj O’Rourke. 2014. “Coal and the European Industrial Revolution.” NBER Working Paper 19802.

Kander, Astrid, Paolo Malanima, and Paul Warde. 2014. Power to the People – Energy and Economic Transformation of Europe over Four Centuries. Princeton, NJ: Princeton University Press.

Kander, Astrid, and David I. Stern. 2014. “Economic Growth and the Transition from Traditional to Modern Energy in Sweden.” Energy Economics 46: 56-65.

Kelly, Morgan, Joel Mokyr, and Cormac Ó Gráda. 2015. “Roots of the industrial revolution.” UCD Centre for Economic Research Working Paper WP2015/24.

Krausmann, Fridolin, Heinz Schandl, and Rolf Peter Sieferle. 2008. “Socio-Ecological Regime Transitions in Austria and the United Kingdom.” Ecological Economics 65: 187-201.

Madsen, Jakob B., James B. Ang, and Rajabrata Banerjee. 2010. “Four Centuries of British Economic Growth: the Roles of Technology and Population.” Journal of Economic Growth 15(4): 263-90.

O’Rourke, Kevin Hjortshøj, Ahmed S. Rahman and Alan M. Taylor. 2013. “Luddites, the Industrial Revolution, and the Demographic Transition.” Journal of Economic Growth 18: 373-409.

Pomeranz, Kenneth L. 2001. The Great Divergence: China, Europe and the Making of the Modern World Economy. Princeton, NJ: Princeton University Press.

Tepper, Alexander, and Karol J. Borowiecki. 2015. “Accounting for Breakout in Britain: The Industrial Revolution through a Malthusian Lens.” Journal of Macroeconomics 44: 219-33.

Wilkinson, Richard G. 1973. Poverty and Progress: An Ecological Model of Economic Development. London: Methuen.

Wrigley, E. Anthony. 1988. Continuity, Chance, and Change: The Character of the Industrial Revolution in England. Cambridge: Cambridge University Press.

Wrigley, E. Anthony. 2010. Energy and the English Industrial Revolution. Cambridge: Cambridge University Press.