CHAPTER 6:
KNOWLEDGE,
TECHNOLOGY
TRANSFER AND
CONVERGENCE
HOW REVOLUTIONARY WAS THE INDUSTRIAL REVOLUTION?
• From the 17th century there was a movement from learning by doing to science and experimentation
• Traditional view was that the British Industrial
Revolution, 1770-1830, saw large increase in growth
• But was mostly not based on science, and growth was not much faster than in pre-industrial times
• Preceded by ‘Industrious Revolution’: people worked more days so they could afford new commodities
THE INDUSTRIAL REVOLUTION AS A TRANSITION
• New technologies were introduced, but limited to certain sectors, especially textiles (spinning and weaving)
– But continuation of trial and error improvements since medieval times
• Exception was the steam engine, a general purpose technology
– But also built on previous discoveries
– Initial phase of the Industrial Revolution mostly based on water
GROWTH DURING THE INDUSTRIAL REVOLUTION
• Conventional view was that it was higher
• Crafts and Harley revised this down
– Not much difference with pre-industrial period
• Previous estimates gave too much weight to new and fast-growing sectors (cotton)
• The size of the industrial sector was exaggerated
• So not a revolution in terms of growth rates: modern economic growth only from mid-19th century in Britain
OLD AND NEW ESTIMATES OF TFP GROWTH
IN BRITAIN
INDUSTRIAL ENLIGHTENMENT
• Mokyr: Slow growth but fundamental changes in the intellectual climate, emergence of scientific societies
• Had more than a century of emerging scientific culture
• Pan-European phenomenon, not just British
• Steam engine, electricity, chemistry etc. were the result of scientists from around Europe
• Uniquely European (although not all Europe equally)
– Muslim golden age ended in 12th century – China chose isolation
WHY DID THE INDUSTRIAL REVOLUTION START IN BRITAIN?
• R.C. Allen: Combination of high wages and cheap
energy (coal) Gave an incentive to invest in labour- saving machinery
• But British workers also stronger and better fed, so more productive (but this might also have meant they were
more highly-skilled)
• And early Industrial Revolution relied on water, not coal
• Were new technologies only labour-saving?
PATENTS
• The tragedy of the commons motivates patents
– If inventors cannot benefit fully from their inventions, then they will invest less in inventing
• Scientific societies discouraged patenting, although patents also mean knowledge is kept in the public domain, and expire eventually. Also seldom used for ground-breaking discoveries
• Seems that fame and reputation was enough to motivate in the beginning, but this changed as time moved on
PATENT APPLICATIONS PER YEAR PER
1000 INHABITANTS
ERA OF SUSTAINED AND HIGHER ECONOMIC GROWTH
• Has three characteristics:
1. From mid-19th century, science became a major factor
2. Flow of inventions of new products and production processes increased stimulated investments capital per labourer increased increase in labour productivity
3. Increasingly sophisticated technologies and production processes increased demand for education
• New occupations emerged, e.g. engineers, accountants
• Science has stronger effect than learning-by-doing
SCIENCE AND ENTREPRENEURSHIP
• Scientific foundation for new discoveries shaky until mid-19th century
• Many 19th century investors had poor formal training, but had a scientific mind
• Many investors more skilled as entrepreneurs than researchers: Alfred Nobel, Guglielmo Marconi
• Accidental discoveries attracted scientists searching for explanations, e.g. Louis Pasteur and canning under heat
BRAINS REPLACE MUSCLES
• General characteristics of technological progress in the 18th and 19th centuries:
i. Resource saving
ii. Lessened constraints of nature, especially human and animal energy
iii. Improved the quality of commodities iv. Developed new products and services
v. Widened the resource base for industrial use
SAVING RESOURCES AND LESSENING NATURAL CONSTRAINTS
• The defining characteristics of technological progress throughout time, but speed increased
• 18th century innovations in spinning and weaving were labour saving
• But improvements in steel production were both labour and energy (coal) saving
• Steam turbine, electrification, saved human and animal energy, allowed more flexible location of production
QUALITY IMPROVEMENT (AND QUALITY DIFFERENTIATION)
• Arts and Crafts movement deplored machine-made
products, but sometimes cheap products make sense, e.g.
paper for newspapers
• How to measure welfare gains from technological
change? Real wages rely on constant bundle of goods
• How then to take account of changes in quality, e.g. for light, candles to electric bulbs?
• Quality changes underreported downward bias in real income estimates
NEW PRODUCTS AND PRODUCTION PROCESSES
• 19th century inventions still dominate our lives:
• Mechanized textile production, electrical motors and household appliances, electrical light, combustion engines and cars, wireless communication, the
telephone, cheap paper, plastic, reinforced concrete, steel, etc.
• In agriculture, industrial production of nitrates
• Even the jet engine is made possible by the internal
WIDENING THE RESOURCE BASE
• Increased demand for paper difficult to meet with conventional raw materials (rags, hemp and straw)
• Mechanical method for producing paper from wood invented
• New ways to extract iron from phosphorous-rich iron ore
– Phosphorous reclaimed as slag in the process could be used as fertilizer for agriculture
TWENTIETH CENTURY INNOVATIONS
• Many built on work from 19th century
– E.g. combustion engine, telephone, gramophone, cameras, radio, calculators (computers), etc.
• Centre of gravity of innovation moved to the United States
• Rationalization of production: ‘Fordism’ (division of labour)
• United States enjoyed internal economies of scale which
TECHNOLOGY TRANSFER AND CATCH- UP
• Knowledge is a non-rival good
• By end of 19th century most nations in Europe had people who followed and participated in R&D
• Europe had necessary institutional requirements for technology transfer
– Part of the public literate in science and technology – Minimum level of education
– Banking system to support entrepreneurs
– General institutional characteristics of a modern economy
THE ‘ADVANTAGE OF BACKWARDNESS’
• Income per head gives rough approximation of technological level
• With technology transfer, should be possible for less sophisticated countries to grow faster: ‘catch up’
• Because:
1. Technology transfer
2. Structural change, e.g. agriculture to industry
3. Lower K/L in poorer countries causes them to save and invest
ANNUAL RATE OF GROWTH OF GDP
PER CAPITA 1870-1914, %
ANNUAL RATE OF GROWTH OF GDP
PER CAPITA 1914-50, %
ANNUAL RATE OF GROWTH OF GDP
PER CAPITA 1950-75, %
GROWTH EXPERIENCES OF GERMANY AND THE UK COMPARED
• Germany industrialized later because
– Did not have the institutional preconditions until well into the 19th century
– Smaller market size, did not unify until the 1870s
• Germany then grew faster and overtook the UK because
– Catch up growth
– Higher productivity in many industrial sectors (including chemicals and metallurgy)
WHY DID BRITAIN FALL BEHIND?
HUMAN AND CAPITAL INVESTMENT
• Lower literacy and enrolment rates than US, elite universities not attentive to sciences, Germany had superior system for training labour?
• UK had relatively low investment ratio, did not experience ‘home bias’ – perhaps the opposite!
• UK invested in traditional sectors with low growth potential, traded with slow-growing Commonwealth markets
WHY DID BRITAIN FALL BEHIND?
RESEARCH AND DEVELOPMENT
• Should be a strong relationship between productivity growth and spending on R&D
• US firms were first to set up separate R&D departments
• Germany emerged in 19th century as a leading nation in pure and applied science
– But many of Germany’s best scientists fled Hitler
• Germany permitted cartels, allows firms to spend more on R&D
WHY DID BRITAIN FALL BEHIND?
INDUSTRIAL RELATIONS
• Each industry in UK had many unions based on skills, not industries: gave ‘hold-up’ power in negotiations over wages and new technologies
• Trade unions did not cooperate with firms, unlike in Germany
• Large scale nationalization
• Employers might also be to blame: UK car industry almost wiped out, but still a large car producer!
CONVERGENCE IN THE LONG RUN:
THREE STORIES
• Why did convergence in Europe begin for some in the nineteenth century, but for others after 1950?
• Depends on for example
– Impact of Great Depression on primary producers – Politics
– War / civil war
– Openness, allowing technology transfer – Timing of agricultural transformation
LOG GDP PER CAPITA IN ARGENTINA,
SCANDINAVIA & THE US
LOG GDP PER CAPITA IN GERMANY,
IRELAND, CZECHOSLOVAKIA & ITALY
LOG GDP PER CAPITA IN FRANCE,
SPAIN & THE UK
WHY IS EUROPE NOT CATCHING UP WITH THE US?
• Persistent gap in income per head and productivity between Europe and the US, even after ‘Golden Age’
• Initial differences due to investment in labour-saving technologies in labour-scarce US; large US market
• Makes a difference if we define productivity as GDP per hour worked: Europeans have a stronger preference for leisure!
• Even then there is still a difference, perhaps inefficient
SUMMARY
• Technology is non-rival, should lead to catch-up between countries
• European gap with US explained by more leisure, lower TFP growth (perhaps due to rigidities in adopting new technologies)
• Openness to trade and foreign investments correlate with growth
• Institutions explain much of the differences within Europe
