This is an essay I wrote last year in my world economic history class.
How did industrialisation change the world economy in the long run?
"Industrialisation" is the transition from agrarian to industrial societies, involving the bulk of economic activity shifting from agricultural production to capital-intensive manufacturing industries, driven by technological innovation. This essay will focus on the Industrial Revolution, the period from the latter half of the 18th Century to the mid-19th Century where Britain, much of continental Europe, and the USA began to rapidly industrialise. "World economy" refers to economic activity conducted within and between nations. Regarding the "long run", this essay will specifically focus on the late 1800s and early 1900s, at least half a century after the Industrial Revolution’s end. This essay will examine industrialisation's effects on people, examining labour, living standards and demographics. It will also consider its effects on production, trade, and industrial organisation, from the perspective of both industrialising and non-industrialised countries.
Industrialisation resulted in long-run changes to demographics, labour structures, and living standards. Industrialising countries’ populations exploded: Britain’s rose from 5.5 million in 1700-09 to 20.1 million in 1860-69 (Clark 2007:249, Fogel 2004). This was linked to falling living costs as mechanisation increased agricultural productivity, lowering food prices (Allen 2009). Correspondingly, living standards rose: British craftsmen's real day wages increased 224% between 1800 and 1909 (Clark 2005:1325). This was compounded by the "grain invasion" from the 1870s: industrialising Western Europe imported cheap grain from Russia and North America via efficient steam-powered transport, further reducing food prices and increasing real wages (Baten 2016).
Thus, industrialised countries escaped the Malthusian trap in the long run as population and real wages increased simultaneously (Clark 2005). Other metrics similarly reflect industrialisation’s effect on living standards: improved nutrition led to average height increasing in Britain from the 1860s and across industrial Europe from the late 1880s (Baten 2016, Oxley 2013). Higher real wages reduced households’ need to supplement their income via child labour, leading to its long-run decline (Horrell & Humphries 1995).
Industrial nations’ trading partners also saw their living standards rise, importing industrial countries’ lower price levels via cheap imports of grain and manufactured goods. For example, Ireland’s real wage index rose from 61 in 1810 to 100 in 1860 thanks to its trade with Britain (Clark 2005:14).
The Industrial Revolution saw surging demand for urban labour as urban industries expanded. Productivity gains freed surplus labour from agriculture, which, alongside population growth, resulted in rural to urban migration and rapid urbanisation (Allen 2003, Mokyr 2009). The agricultural sector's labour share gradually declined, shifting instead towards the industrial and service sectors (Findlay & O’Rourke 2009). In 1700, agriculture's share of British employed labour was 38.9%, and 34.0% worked in industry; by 1861, those figures were 20.6% and 45.9%, respectively (Broadberry et al. 2013:23).
Highlighting industrialisation’s long-run positive impact on living standards, literacy and numeracy improved, thanks to urbanisation’s effect of increasing school enrolment rates, as well as the incentive provided by skilled urban labour’s considerable wage premium (Clark 2005). In France, school enrolment rates per 1000 rose from under 400 in 1830 to around 860 in 1910, and in East and Southeast Europe, numeracy rose from 75% to just under 100% in the same period (Baten 2016:40, 79). Increasing returns to capital and skilled labour in Britain led to real estate's relative importance as an asset declining, contributing to a long-run Kuznetsian fall in inequality (Clark & Cummins 2014, Lindert 1986).
The Industrial Revolution massively increased economic growth among industrialising nations: the average estimated annual UK GDP growth rate rose from 0.3% in 1700-1760 to 1.98% in 1830-70, beginning the current era of modern economic growth (sustained GDP per capita growth) among developed countries (Findlay & O'Rourke 2009:313). Industry boomed: the cotton industry saw annual growth of 7% between 1770 and 1815 (Findlay & O'Rourke 2009:313). British exports' total value rose from £12,690 in 1784-86 to £102,501 in 1854-56 (Findlay & O'Rourke 2009:314).
Consequently, the Great Divergence between industrialising regions and the rest of the world accelerated. In 1913, Europe and the UK's offshoots represented 89.8% of world manufacturing output. China and India combined accounted for a mere 5.0%, down from around 33% and 25% respectively in 1750 (Findlay & O'Rourke:324). Industrialisation thus enabled European powers, as well as the USA and Japan, to intensify their colonisation efforts from the late 19th Century (Baten 2016). World income distribution also diverged, remaining practically unchanged to this day: the income difference between the very richest and very poorest nations is now over 30-fold (Acemoglu 2009:3). Industrialisation has thus resulted in a status quo of inequality between the rich, quick-to-industrialise nations and the rest of the world (Acemoglu 2009).
Capital innovations during the Industrial Revolution reduced costs and boosted productivity (Allen 2009). New metallurgical processes dramatically increased iron output, whilst the Flying Shuttle (1735) doubled cotton weavers' productivity (Findlay & O'Rourke 2009). Steam power's application in many manufacturing processes hugely increased industrial output. By 1835, three quarters of the power used in British cotton manufacturing was from steam. Processing 100lb of cotton in 1825 took 50,000 person-hours in India: in England, it took 135 (Findlay & O'Rourke 2009:320). British exports thus undercut India's cotton industry, contributing to the country’s deindustrialisation over the 19th Century, a common occurrence for non-industrialised countries whose industries were outcompeted by industrial nations (Findlay & O’Rourke 2009).
Alongside broad technological change, coal's rapid adoption as an energy source enabled industrialising nations to escape the Malthusian trap, as its abundance and relative ease of extraction suddenly reduced land's constraint upon living standards (Findlay & O’Rourke 2009). Coal-powered transportation similarly reduced industrial Europe's land constraints by enabling food and raw materials to be imported from the Americas on an unprecedented scale, and by enabling large-scale European migration to the Americas (Baten 2016, Findlay & O’Rourke 2009).
The Second Industrial Revolution that occurred in the USA from around 1870 accelerated the output and productivity increases from the “First” Industrial Revolution. The emergence of the "American System of Manufacturing", involving the division of labour, assembly line production, and the use of interchangeable parts, massively increased labour productivity (De Long 1992, Hounshell 1985). This enabled mass production of standardised goods: the Ford Model T's production time fell from over 12 person-hours before August 1913 to 26.5 minutes in July 1914, following the introduction of moving assembly lines (Hounshell, 1985:254, 256). By 1923, the USA’s share of global automobile exports was 54% (Foreman-Peck 1982:868).
The increasing efficiency of production at scale resulted in the emergence of multinational corporations. This was further facilitated by European labour migration to the USA during the "first era of globalisation" (1850-1913), as well as the USA's adoption of the gold standard in 1879 (Baten 2016, Hatton & Williamson 2005, LaFeber 1993).
In conclusion, industrialisation had profound long-run effects on the world economy. Among industrialised nations, population skyrocketed, as did living standards, output, and productivity. The labour force, and indeed the focus of the entire economy, transitioned from agriculture towards industry and services. Nations saw rapid urbanisation and technological advances that catalysed long-run economic progress. However, non-industrialised nations invariably saw their shares of world output and trade decline as the Great Divergence accelerated. They began to fall behind as their production techniques and technology became increasingly outdated, often leading to their domination (both militarily and economically) by industrial powers.
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