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.
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).