Institutions, Britain, and the Industrial Revolution

In chapter 2 of Eric Hobsbawm’s classic book, The Age of Revolution, there is an interesting section on the Industrial Revolution and Britain. Hobsbawm brings up the question of why the Industrial Revolution emanated in Britain, rather than France or Prussia (Germany):

Whatever the British advance was due to, it was not scientific and technological superiority. In the natural sciences the French were almost certainly ahead of the British; an advantage which the French Revolution accentuated very sharply, at any rate in mathematics and physics, for it encouraged science in France while the reaction suspected it in England. Even in the social science the British were still far from that superiority which made – and largely kept – economics a preeminently Anglo-Saxon subject; but here the Industrial Revolution put them into unquestioned first place.

The economist of the 1780s would read Adam Smith, but also – and perhaps more profitably – the French physiocrats and national income accountant, Quesnay, Turgot, Dupont de Nemours, Lavoisier, and perhaps an Italian or two. The French produced more original inventions, such as the Jacquard loom (1804) – a more complex piece of apparatus than any devised in Britain – and better ships. The German possessed institutions of technical training like the Prussian Bergakademie which had no parallel in Britain, and the French Revolution created the unique and impressive body, the Ecole Polytechnique. English education was a joke in poor taste, though its deficiencies were somewhat offset by the dour village schools, and the austere, turbulent, democratic universities of Calvinist Scotland which sent a stream of brilliant, hard-working, career-seeking and rationalist young men into the south country: James Watt, Thomas Telford, Loudon McAdam, James Mill. Oxford and Cambridge, the only two English universities, were intellectually null, as were the somnolent public or grammar schools, with the exception of the Academies founded by the Dissenters who were excluded from the (Anglican) educational system. Even such aristocratic families as wished their sons to be educated, relied on tutors or Scottish universities. There was no system of primary education whatever before the Quaker Lancaster (and after him his Anglican rivals) established a sort of voluntary mass-production of elementary literacy in the early nineteenth century, incidentally saddling English education forever after with sectarian disputes. Social fears discouraged the education of the poor. (Hobsbawn 1962: 29-30)

The causes of economic growth, especially of the kind experienced by the west during the Industrial Revolution (also called the Great Divergence), is a long debated subject that I won’t delve too deep into. However, this passage does put some historical perspective on the issue of culture and economic growth. While I wouldn’t make the ridiculous claim that culture doesn’t matter, I would say that cultural explanations that invoke irrationality and laziness are suspect. In terms of culture, education, science, etc, France (and even Prussia to an extent) was head and shoulders above Britain. Yet during the rivalry between Britain and France that dominated the European international scene in the 18th century, it was Britain’s economy that flourished:

For the British not only won, with varying degrees of decisiveness in all but one of these wars. They supported the effort of organizing, financing and waging them with relative ease. The French monarchy, on the other hand, though very much larger, more populous, and, in terms of her potential resources, wealthier than Britain, found the effort too great. (Hobsbawn 1962: 25)

As Hobsbawn points out, it was wasn’t culture or technical innovation that caused Britain’s rapid economic growth in the late 18th century, but rather political and institutional change:

But the right conditions were visibly present in Britain, where more than a century had passed since the first king had been formally tried and executed by his people, and since private profit and economic development had become accepted as the supreme objects of government policy. For practical purposes the uniquely revolutionary British solution of the agrarian problem had already been found. A relative handful of commercially-minded landlords already almost monopolized the land, which was cultivated by tenant-farmers employing landless or smallholders. A good many relics of the ancient collective economy of the village still remained to be swept away by Enclosure Acts (1760-1830) and private transactions, but we can hardly any longer speak of a ‘British peasantry’ in the same sense that we can speak of a French, German or Russian peasantry. (Hobsbawn 1962: 31)

Hobsbawm is not alone in his interpretation. Douglas North (North 1991 and North 1989) highlights the restructuring of Britain’s political institutions after the Glorious Revolution. The creation of a politically independent judiciary, the separation of powers, and a new central administrative apparatus that prevented the arbitrary violation of property rights all contributed to politically stability and policy certainty, a necessity for economic growth.

Parliament’s new authority to raise taxes and tax effectively lead to a constant supply of revenue that allowed the government to borrow money, resulting in the growth of a stable market for public debt. As development continued, the Bank of England partook in private enterprise and other new banks were beginning their operations. New securities and negotiable instruments gave the government and the public opportunities to finance a wide range of activities. This financial revolution created an institutional structure for the intermediation between borrowers and lenders, a remarkable development. And it was these formal institutions that lead to the creation of informal rules (sanctions, customs, traditions, etc..) that laid the infrastructure for well functioning markets, economic development, and the Industrial Revolution.

This is in direct contrast to France and many other European countries, who were still ingrained with outdated institutions, e.g. hereditary monarchies, that were unable to deal with the necessary changes required for economic and social progress. “Absolute monarchy, however theoretically free to do whatever it liked, in practice belonged to the world which the enlightenment had baptized feodalite or feudalism, a term later popularized by the French Revolution” (Hobsbawn 1962: 23).

This development in economic history that reveals the importance of institutions and their effect on economic development. While appeals to culture might seems plausible at face value, those claims must be analyzed within a broader framework that also looks at institutions, geography, and other factors.

References:

1. Allen, Robert C. Global Economic History: A Very Short Introduction. Oxford: Oxford UP, 2011. Print.

2. Hobsbawm, E. J. The Age of Revolution: Europe, 1789-1848. London: Weidenfeld and Nicolson, 1962. Print.

3. North, Douglas. “Institutions.” The Journal of Economic Perspectives, 5.1 (1991): 97-112. Print.

4. North, Douglas, and Barry Weingast. “Constitutions and Commitment: The Evolution of Institutional Governing Public Choice in Seventeenth-Century England.” The Journal of Economic History 49.4 (1989): 803-32. Web.