REGIONAL DEVELOPMENT

EUROPEAN EMERGENCE

IMPORTANT NOTICE

• These slides are prepared using: Economic Development A Regional, Institutional and Historical Approach by Richard Garabowski, Sharmistha Self and Michael P. Shields.

• Please refer to the book for the relevant section.

• Lecture slides will not be sufficient!

EUROPEAN EMERGENCE

• The Industrial Revolution, which began in England, marked a dramatic change in the economic history of the world.

• The result was thought to have been a dramatic increase in the overall rate of economic growth.

• The economic development that set the stage for industrialization began long before the Industrial Revolution. As such, this development was evolutionary rather than revolutionary in nature.

Growth During the Industrial Revolution

• The English Industrial Revolution is conventionally dated as occurring between 1760 and 1830. During this period, there was a phenomenal expansion of cotton spinning, coke smelting, coal and iron production, as well as new commercial organizations. Some controversy remains over how rapidly England grew in this period, though, and as to the sources of this growth.

• Estimates of growth rates are low by today’s standards, ranging from less than 1 percent per annum to slightly above 3 percent.

• Furthermore, much of this growth may have been more the result of the accumulation of physical inputs (e.g., labor and capital) than as a result of overall increases in productivity.

• In these sorts of discussions it is perhaps helpful to make a distinction between extensive and intensive growth. Growth of output has occurred throughout much of human history. Much of this growth was extensive in nature that is, as the size of population grew, additional land was brought under cultivation.

• The Malthusian perspective vs Boserup.

• Intensive growth occurs with a rise in per capita income that is sustained over long periods of time. It appears that the Industrial Revolution was a period in which intensive growth became established in England.

• England did indeed become the workshop for the world, to the extent that by the mid-to-late nineteenth century a huge gap had opened between it and all other countries.

• Tremendous structural change occurred in England. By 1860, England displayed a sectoral composition that was achieved in other countries only many decades later.

• In order to understand how this restructuring of England’s economy occurred, one must begin with an analysis of the system of feudalism. It was out of this system and its agricultural production that the new economy evolved.

Agricultural Growth

• Models we have covered earlier presume that a less-developed country is made up of two sectors: traditional and modern. The process of economic development unfolds as a result of the interaction of these sectors.

• These dualistic models usually are presumed to be closed; that is, they are not open to trade.

Constraints of the Modern Secto Expansion

• For a modern sector to exist, the traditional sector must be able to produce enough food to feed the peasant farmers plus enough extra food (agricultural surplus) to feed the manufacturing workforce and entrepreneurs.

• The landed elite must refrain from consuming the food surplus and be willing to exchange it for the output of the modern sector.

• Part of the labor (surplus labor) of the traditional sector must be available to provide the workers for the modern sector.

• While these dualistic models were not intended to describe development in Europe, they may nonetheless be helpful in examining the experience of fifteenth-, sixteenth-, and seventeenth-century England.

• In the early part of this time period, England was characterized by an economic, political, and social set of institutions commonly known as feudalism.

• Political authority became concentrated in the hands of lesser and greater warlords, constantly in struggle against each other.

• Lords vs serfs=> Agricultural production.• Trade: Merchants=>Towns.• Limited international trade.

• The implication of the above analysis is that a modern sector cannot expand unless there are increases in agricultural surplus traded for manufactured goods.

• It seems indeed that a necessary condition for the expansion of the modern sector is a persistent increase in agricultural productivity, providing increased amounts of agricultural surplus.

• Historical evidence indicates such increase in productivity.

• While the total population of England rose by 210 percent from 1600 to 1800, the percentage of the population engaged in agriculture declined from 70 to around 36 percent.

• Robert Brenner (1982) offers a different view as to the cause of the agricultural growth. He believes that during the late fifteenth and sixteenth centuries the agrarian crisis caused by the Black Death (1348–49) resulted in a dramatic altering of the property-rights system in the countryside.

Protoindustrialization and Trade

• The agricultural growth discussed above set off a process of market expansion culminating in dramatic structural changes.

• The expansion of production of non-agricultural goods has often been labeled as protoindustrialization.

• Protoindustrialization began as production by artisans and evolved into small-scale manufacturing, often based on a “putting-out system.”

• It then became possible for specialization to expand in both the rural and urban areas. This, of course, allowed the normal productivity increases that come with specialization.

• Thus, by the late eighteenth century, England had become a very different place. It was becoming increasingly urbanized, specialization in production was growing, and the commercialization of society was still under way.

• David Ricardo, certainly appreciated the dramatic changes that England had undergone, but he was skeptical that this process could continue.

• Ricardo was not rejecting the idea that the expansion of markets and the specialization that resulted could raise productivity. He was, however, skeptical that this sort of process could result in a persistent rise in productivity over extended periods of time.

• “Organic Economy”

• Ricardo argued that international trade might provide a reprieve, at least temporarily, from the law of diminishing returns. In order to understand his argument one must first understand a bit of England’s agricultural history, especially as concerns the Corn Laws (which concerned grain of all kind).

Exploitation and Slavery

• There is a theoretical branch of economics, known as dependency theory, which argues that free trade was certainly a key to the rise of England. However, its interpretation of the role of free trade in England’s growth is quite different.

• Dependency theorists divide the world into two regions: the center and the periphery. The center is made up of the economically advanced, industrialized countries, which generally produce and export manufactured goods to the periphery.

• Dependency theorists emphasize the power differential that exists between center and periphery. Through the process of colonization, the elite establish themselves in the metropolitan areas of the periphery.

• How is the surplus extracted? => Terms of trade.

• The terms of trade for a region are the average price of its exports divided by the average price of its imports.

• Most of the explanations have to do with the exertion of some sort of monopoly or monopsony power by the center countries.

• There are a number of critical issues raised by the dependency theorists that are relevant to our discussion concerning the European emergence.

• How critical was the trade between the center and the periphery in the center’s industrialization process?

• Did the periphery provide the raw materials that were critical to the industrialization process?

• Did the periphery provide the profits that financed the Industrial Revolution in England and northwestern Europe?

• What was the impact of this relationship on the periphery? • Were the developmental prospects of the periphery

damaged?

• Senghaas (1985) argues that the external economic links of Europe were mainly of an intra-European nature.

• 70 percent of all European exports involved trade among European nations and 65 percent of all European imports involved trade among European nations.

• Senghaas goes on to argue that Europe was self-sufficient and not dependent on supplies of foodstuffs, agricultural raw materials, and minerals from the developing word of the nineteenth century.

• Trade does, however, provide benefits to the participating countries as a result of specialization and comparative advantage. In the European case, perhaps it was the large markets provided by the periphery that allowed significant gains in productivity to be made via specialization.

• Recently, an alternative view has been proposed by Inikori (2002). He argues that, although trade flows in general were intra-European in nature, and profits from trade with the periphery were small relative to total capital accumulation, this information is quite misleading.

• The successful industrializing northern countries sold the greater part of their manufactures overseas”

• The bulk of this trade involved trans-Atlantic commerce.

• “Between 1699/1701 and 1772/1774 increases in the sale of English manufactures in Western Africa and the Americas accounted for 71.5 percent of the increment in overseas sales of English manufactures”

• Inikori believes it was African slave labor that was thus crucial to the Industrial Revolution in England. The abundance of land in the Americas meant that free labor migrating into the region sought to establish small, independent farms that were basically subsistence oriented.

• “Given this situation, legally free labor could not form the basis of large-scale commodity production in the Americas for Atlantic commerce”

The Evolution and Role of Political Institutions

• In examining the process of economic development, economists have traditionally ignored institutions, particularly political institutions, and the role of politics. Instead, concentration was focused on analyzing market malfunctions and designing policy solutions that it was implicitly assumed would be administered by a state whose main goal was the welfare of its citizens.

• The ruling elite of any society is presumed to make policy with the goal being to maximize their own welfare and their own wealth. Because they are a small minority of the population of any society, policies that maximize their welfare may not be the same sort of policies that raise the welfare of society in general.

• Political development is the evolutionary process by which the pursuit of wealth maximization by the elite comes to coincide with wealth maximization for society at large.

• States that rely on income drawn from the population in general (i.e., unimodal) are more likely to become politically developed

• It seems that, out of this struggle between the commercial interests and the ruling elite, a national economic interest or view was evolving in England, which represented a consensus as to individual rights in the pursuit of commercial interests and limitations on the state’s ability to manipulate the terms of commercial exchange for its own benefit.

• Glorious Revolution of 1688.

Culture and Nationalism

• There is a vein in the social-science literature that would strongly dispute this implicit assumption. It would argue that the motivations to save, accumulate, and innovate are not found everywhere, that the development of such motivations was relatively unique and recent in economic history.

• Max Weber was one such theorist, and the purpose of his work was to try to explain the shift in social attitudes taken toward valuing economic activity that is oriented toward growth.

• That is, the European emergence was the result of the dominance of new motivations that received the approval of a new set of system of ethics, but that new system of rationalization was not Protestantism.

• It is nationalism that represents the new spirit of capitalism.

Culture and Technology

• A different sort of perspective on the role of culture in the European emergence comes out of the work of Goldstone. Much of this chapter has implied that things happening in Europe from the late sixteenth to the nineteenth century were unique to Europe. For example, growth was intensive, not just extensive.

• Goldstone, however, argues that this interpretation is incorrect. He introduces a new term, efflorescence, which he argues is the opposite of crisis.

• From a pure economic perspective, an efflorescence involves both Smithian growth and Schumpeterian growth.

• Goldstone’s main point is that the European (i.e., English) efflorescence of the eighteenth and early nineteenth centuries was not unique in the history of the world. From time to time a particular society would experience an economic efflorescence for a particular period, only for it to die out.

What We Have Learned

• First, the Industrial Revolution was more like an industrial evolution. It was a slow series of changes that took place over a relatively long period of time. The key was that growth in income per person, while slow, was sustained. Growth persisted.

• Without an agricultural revolution, Smithian growth, and commercialization, there would have been no long-term industrialization. Without the development of a machine culture, the application of science to production, there would have been no long-term industrialization. It was the fortuitous combination of both that led to the European emergence.