Friday, January 07, 2005

Industrialization and the state

Don Boudreaux's right to say that the state didn't consciously plan Britain's industrialization, but in quoting the economic historian Mathias, he happily skips over a very important passage:
All later industrializations have been much more involved with public initiative and imported capital...Even in the United States...American railways often prospered, like many of their colleges, on land grants from state governments.
Before jumping to the conclusion that Britain's example disproves statism, we should consider why no one else followed Britain's example.

The fundamental uniqueness about Britain is that Britain industrialized first. It did so when technology was comparatively primitive so that the takeoff industry was textiles, and not steel and railroads. Textile factories are cheap, so they could be set up with the capital that Britain's gentry class had accumulated after the increase in agricultural productivity that resulted from the agricultural and commercial revolutions. Later countries industrialized after technology had advanced to railroads and steel, which are "high-capital" industries. These industries needed things like land grants for railroads, big infusions of money beyond what a single entrepeneur could provide.

Perhaps more importantly, the very fact that Britain was unintentionally first highlights the favorable factors that made industrialization in Britain (but nowhere else) so easy. Things like - easy water transport (Britain is an island, after all); landless laborers impoverished by the Enclosure Acts and desperate for work; a population of technically proficient entrepeneurs; a Parliament made up mainly of the commercial class; a huge export market for textiles in India; etc.

Indeed, Eric Hobsbawm has argued that the export market - i.e., colonies created by a commercially minded Parliament - provided the spark necessary to kick start industrialization, while the domestic market provided the fuel for slow and steady growth. If you are a textile manufacturer in pre-industrial England, what motive could you possibly have for investing in new, industrial forms of production to drive your production exponentially upward? Why not just keep your old pre-industrial forms and expand them to meet domestic demand? It was only the sudden and drastic expansion of demand created by colonialism that sparked manufacturers to industrialize.

Actually, if you think about it, the unique case of Britain proves nothing about the general need for a state in industrialization. Before 1750, no one had ever conceived of industrialization (that is, the radical re-orienting of society toward a market economy, inanimate sources of energy, mechanization, exponential increases in production, etc.). Such a thing had never existed in the history of mankind. So obviously - tautologically - it could only come about spontaneously. Meanwhile, it most noticeably did not come about spontaneously in any other country in the world.

Obviously, a too-strong state is bad for industrialization - you do need a free market after all. But the fact that the British state didn't consciously push Britain toward industrialization doesn't contradict the idea that the state was necessary in many ways, or that conscious state intervention can successfully promote industrialization.


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