In the final 2014 lecture in the History of Capitalism series, the Legatum Institute hosted Nicholas Crafts, Professor of Economics and Economic History and the Director of the ESRC Research Centre on Competitive Advantage in the Global Economy (CAGE) at the University of Warwick, who explored the question of why Britain was the first country in the world to experience the transition to an industrialised economy.
Using a blend of macroeconomic knowledge, detailed statistics and accurate historical analysis, Nicholas Crafts showed why he is one of the foremost economic historians in the field.
Crafts traced Britain’s first industrial revolution from 1750, where Britain had just a 1.9% share of world industrial production, through to 1880 when it reached a peak of over 20%. Whilst this was a remarkable achievement in comparison to the rest of Europe and the ‘deindustrialisation’ experienced in India and China in that period, he explained that, compared to modern growth performance (particularly in the BRICS), it was in fact a modest beginning. In addition, Crafts dispelled the myth that steam power was responsible for the increase in productivity in the 18th century; in fact, as he pointed out, James Watt’s invention would not have a dramatic impact until 1850, with the move to high pressure steam.
Explaining the sustained increase in technological progress is the key to answering ‘why Britain got there first’, argued Crafts. Among the key factors he identified strong institutions and good market economy policies were crucial precursors for industrial success. Nonetheless, there were no major changes in any of these factors immediately before the Industrial Revolution.
Crafts argued that a mix of high wages, cheap capital and coal, combined with the ‘great synergy’ of the Enlightenment (promoting the improvement of technologies and institutions leading to modern economic growth) offer the most plausible explanation as to why Britain became the world leader in industry. More than any other economy, it was able to take advantage of its endowment of human and physical resources, and had adaptable institutions, as well as already being one of the richest countries in the world by the 18th century. He focused on the centre of the Industrial Revolution, the Lancashire cotton industry, and its favourable original and acquired advantages in explaining its success.
During the audience discussion, Crafts recognised that the Napoleonic wars between 1799 and 1815, which affected much of mainland Europe but did not trouble Britain, would have given fledgling industry in the country a comparative advantage. A relatively large free trade area, successful navigation and global naval dominance were also factors cited for Britain’s economic success. Whilst it is unsurprising, in hindsight, that Britain might ‘beat’ France in the race to industrialise, the Netherlands was perhaps Britain’s most direct competitor, but it did not possess such an attractive combination of labour and energy prices. The discussion also included an evaluation of the causes of the United States’ industrial revolution, which began later and reached a peak of total factor productivity growth between 1820 and 1860.
Crafts also looked at the advantages of economic agglomeration, in particular focusing on Lancashire. He explained that the region benefitted from favourable geography and low wage rates, and compared it to the agglomeration of the City of London, which was and still is primarily one of information. The Industrial Revolution, he stressed, saw a decline of rent-seeking and the rise of textile innovators come from the working and lower classes.
In the course of a dinner-discussion following the lecture, the debate shifted to the question of what lessons entrepreneurs can take from the successes of the period. The focus was on how to harness ingenuity and develop it into a viable business model. Funding, a favourable market environment, and the ability to persuade investors that a service or product is a question of need rather than merely a scientific innovation, were cited as crucial to allow entrepreneurship to flourish. The impact of both culture and religion was also assessed, given that for some countries the opportunities available to those during the Industrial Revolution have only just become accessible.
The discussion was hosted by Hywel Williams, Senior Adviser at the Legatum Institute.
The History of Capitalism series will continue in 2015; the first lecture, on 'Rome’s Economic Revolution’, will be given by Philip Kay on 15 January 2015.
Video—Industrialisation: Why Britain Got There First—Interview with Nicholas Crafts
Video—Industrialisation: Why Britain Got There First—Full Discussion with Nicholas Crafts and Hywel Williams
Video—Industrialisation: Why Britain Got There First—Introduction with Sian Hansen, Executive Director, Legatum Institute
Podcast—Industrialisation: Why Britain Got There First—Interview with Nicholas Crafts
About the Speaker
Nicholas Crafts is Professor of Economics and Economic History and the Director of the ESRC Research Centre on Competitive Advantage in the Global Economy (CAGE) at the University of Warwick. His main fields of interest are long-run economic growth, British economic performance and policy in the 20th century, the industrial revolution, and the historical geography of industrial location. He has published many papers in academic journals and has also contributed to research by the International Monetary Fund and the World Bank.
About the History of Capitalism
This new series of lectures, which forms part of the Legatum Institute's 'The Culture of Prosperity' programme, investigates the origins and development of a movement of thought and endeavour which has transformed the human condition. Capitalism's characteristic emphasis on freedom of trade and market expansion has encouraged social mobility, global exploration and intellectual curiosity. Wherever and whenever it has appeared across the world's continents capitalism has undermined monopolies, economic protectionism and restrictive practices. Our lecturers will therefore be assessing case studies in business history and the individual biographies of thinkers, writers and inventors as well as describing particular periods in the histories of cities, states and nations. Further information available here.