Robert C. Allen. *Global Economic History: A Very Short Introduction*.
Oxford: Oxford University Press, 2011. xiv + 170pp. £8.99 (paperback), ISBN
978–0–19–959665–2.
Robert C. Allen. *The Industrial Revolution: A Very Short
Introduction.* Oxford:
Oxford University Press, 2017. xiv + 150pp. £8.99 (paperback), ISBN
978–0–19–870678–6.
Reviewed by Avner Offer, Professor Emeritus of Economic History, All Souls
College, University of Oxford, for EH.NET <http://eh.net/>.
These two books are already classics. Robert Allen has spent decades
investigating the cause of modern economic growth from early modern times
to the 20th century. He developed a metric for economic welfare, the
minimum household subsistence basket, which has been estimated globally
over the whole period, and an analytical framework for understanding the
drivers of economic growth. These two books distil his findings and
opinions. The learning is worn lightly: the books are reliably expert but
are also succinct and highly readable. For the subject they cover, there is
nothing better.
The first title, on global economic growth, is breath-taking in its grasp.
It describes and accounts for the process of economic growth over five
centuries in Asia, Europe, and the Americas. For each historical period and
for each region the argument, framed in terms of cause and effect, delves
down to the detail of institutions, technology, and welfare, supported by
illuminating graphs and tables, most of them from data assembled by Allen
himself. The past is sometimes allowed to speak in its own voice. The story
is driven by a deep curiosity about how things work, for the ways that
people and firms conduct themselves, with a hands-on relish for the feel of
physical machinery. All this makes for a compelling read, and the books are
deservedly very popular. The second of them, on the British Industrial
Revolution, has all the virtues of the first, and adds an excellent chapter
on social and political impacts which affirms a pessimistic view of worker
welfare in a period of soaring business wealth. This grand project has
encountered some controversy. Although firm in his own views, Allen also
gives a generous hearing to other interpretations and especially those that
stress the role of culture, knowledge, science, and civil society. If there
is any partiality at all, it is not ideological but methodological.
The core issue is defined by Allen as why modern economic growth, and why
initially in Britain and Europe more generally. Up to the 18th century,
China and India together dominated global manufacturing and had a large
export trade with Europe, porcelain from China, fabrics from India. Why did
manufacturing shift from the east to the west during the 19th century, and
why did it shift back again by the end of the 20th century? Implicitly
underlying the argument is a neoclassical (Cobb-Douglas, Solow) model in
which growth arises from the combination of capital, labour, and
technological innovation. The pace and direction of growth are determined
by the relative costs of these factors. In 18th century Britain labour was
already costly in consequence of pre-industrial progress on a broad front,
while capital was relatively cheap as a result of trading profits and large
landowner rents. Hence there was a strong incentive for labour-saving
technological innovation at the outset of the Industrial Revolution, and
for the ensuing mechanical and chemical breakthroughs which gave Britain
its industrial leadership. Where hands were cheaper there was no incentive
to replace them with costly machines. In a process of incremental
innovation Britain’s mechanised industry became the lowest-cost producer
and dominated industrial exports worldwide for several decades.
But that cannot be the whole story, as Allen recognizes. If it is only a
matter of the relative prices of capital and labour, why could capital not
move to Asia, employ Asian labour, and export to Britain at even cheaper
prices? That is what happened in the 20th century, when Britain and the
United States de-industrialised and saw their manufacturing move offshore
within the space of a few short decades, stranding the abilities and skills
of manufacturing workers at home.
To adequately tell the story of modern economic growth Allen needs to bolt
on several extensions, which in the end make it a different model from the
one that merely responds to relative prices. As he tells it, the initial
triggers were actually two windfalls, firstly the maritime expeditions
which opened up access to new commodities and created new markets and a
great deal of wealth, part of it arising from the forcible enslavement of
Africans. Two centuries later this was followed by the serendipity of
easily accessible coal in the United Kingdom. Both of these windfalls are
taken to be necessary conditions for the growth that ensued. Countries less
favourably positioned could eventually catch up and substitute for the
missing factors and for the stimulus of high wages, by means of a standard
‘development package’ made up of removal of internal trade barriers,
external tariffs, domestic transport development, an effective financial
system, and mass education and literacy. First implemented in the United
States in the early decades of the 19th century, these policies were
advocated influentially by Friedrich List in Germany (1841). The package
was implemented successfully in continental Europe, but with mixed results
in Latin America a century later, due to the economies there not being
large enough to deploy manufacturing at a large enough scale.
The standard package provides a hint as to why capital could not be
successfully exported to India to mechanise it early in the 19th century.
As Allen shows in the case of the British Industrial Revolution, what
counted was not only the price of labour but also its quality. While Indian
workers were illiterate, about half of British ones could already read and
write at beginning of the 19th century. Technical innovation in Britain
took place within a rich ecosystem of a mature, articulate, urbanised civil
society, with enterprise, science, curiosity, debate, and an elaborate
subdivision of labour. For countries too far behind to implement the
‘standard package’ there was also a ‘Big Push’ catch-up option. Development
was anticipated by heavy investment applied top-down in strategic sectors
in manufacturing, agriculture, and education. First down this route were
the Japanese, followed by the Soviet Union, and then successfully in Korea,
Taiwan, and mainland China.
Allen’s books are satisfying to read as an acute historical account of
economic development globally, but their theoretical framework is somewhat
ad hoc. By stopping mostly at the end of the 19th century they largely
ignore intrinsic limitations of economic growth as an ultimate source of
welfare. Applying another perspective can reveal a different weighting and
significance for the crucial factors. One such perspective is the
discipline of economics itself as it arose in the cauldron of the
Industrial Revolution, namely the classical economics of Adam Smith,
Malthus, Ricardo, Marx, and John Stuart Mill. Unlike the neoclassical
economics which followed, the factors of production were initially labour,
capital and land, the latter factor representing the benefits and costs of
location and the bounty of natural resources. It has been argued that
Nature was taken out of economics (or rather taken for granted entirely)
from the 1870s onwards by neoclassical economists wary of Henry George’s
proposals for concentrating taxation on land (Gaffney and Harrison, 1994).
Restoring land as a factor has several explanatory advantages. It embraces
overseas discovery not as an inexplicable windfall but as an expansion of
the Earth’s exploitable surface, and takes analytical account of the
crucial role of distance in trade. It places a decisive emphasis on fossil
fuel, not only as ‘cheap energy’ available in particular locations, but as
a force multiplier which leveraged muscular effort by more than an order of
magnitude. Arguably this was a sufficient condition for economic growth
once the technical problems of extraction were solved by means of the
Newcomen steam engine and its successors. From that point of view
technological development was an extended effort to harness and deploy this
force multiplier for human requirements, a process that was necessarily
slow and uneven, yet eventually became the main driver of modern economic
growth. Without the energy surge of coal, technical innovation in itself
would have been of little or no avail.
One of Allen’s key concepts is the minimum subsistence basket, which forms
the unit of account. It does not include rent as the cost of location, only
a standard 5% addition for housing. One of the costs of urbanisation,
however, is much higher location rents. When these are taken into account
the terminal multipliers of living standards which he provides, especially
in the West, are too high, and provide an overestimate of well-being which
continues up to the present. In the big metropolitan cities today location
rents can make up to a quarter of the cost of living, ignoring other costs
of congestion like air pollution and travel time. In the Habakkuk thesis
(mentioned by Allen) the high wages in North America are caused by the
abundance of land and are otherwise inexplicable in his account of economic
growth there: the land factor again.
Economic growth is currently on course to exhaust the resources required
for human life by warming up the climate and running down water supplies
and usable energy. We are running out of ‘land’ in its broad economic
connotation. Growth threatens to undermine itself, and may well turn out to
have been a reversible phase in human development. The untrammelled and
destructive pursuit of gain is exacerbated by the meliorist bias of
neoclassical growth theory. The current economic analysis of climate draws
on the same optimistic Solow growth theory to dismiss the dire predictions
of climate scientists, thus acting to slow down preventive action and
making disaster more likely. In contrast, substituting usable energy for
technological change in growth models provides a third driver for growth
which is as measurable as labour and capital, which has a good long-run
empirical fit (Hall and Klitgaard, 2010; Warr, et al., 2011). Technology,
the imponderable factor in current growth theory, can also spring unwelcome
surprises. General artificial intelligence, a prospective form of
Schumpeterian creative destruction, threatens to make humanity itself
redundant.
Allen knows about most of these complications, and this review is too short
to do justice to the richness and subtlety of his account. These studies
provide a landmark outline of global economic growth and the British
Industrial Revolution in alignment with mainstream economic thinking today.
After more than two centuries of reflection and writing, these admirable
works also highlight how much still remains to be understood.
References
Gaffney, M., and F. Harrison. \’Neo-classical Economics as a Stratagem
against Henry George\’. Pp. 29-122 of *Corruption of Economics*, ed. M.
Gaffney. London: Shepheard-Walwyn (Publishers) in association with Centre
for Incentive Taxation Ltd, 1994.
Hall, C. A. S., and K. A. Klitgaard. *Energy and the Wealth of Nations:
Understanding the Biophysical Economy*. New York: Springer, 2012.
Warr, B., R. Ayres, et al. `Energy Use and Economic Development: A
Comparative Analysis of Useful Work Supply in Austria, Japan, the United
Kingdom and the US during 100 years of Economic Growth’. *Ecological
Economics* 69: 1904-1917 (2010).
Avner Offer (https://sites.google.com/view/avoffer) is Chichele Professor
Emeritus of Economic History, University of Oxford, All Souls College. His
most recent book is *Understanding the Private-Public Divide: Markets,
Governments, and Time Horizons* (Cambridge University Press, 2022).
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