1 / 41

British Economic Growth in the Steam Age: Some Lessons for Today

British Economic Growth in the Steam Age: Some Lessons for Today. Nick Crafts University of Warwick. General Purpose Technologies (Lipsey et al, 1998). Over time are found to have many uses and complementarities … are pervasive Initially have much scope for improvement

halden
Download Presentation

British Economic Growth in the Steam Age: Some Lessons for Today

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. British Economic Growth in the Steam Age: Some Lessons for Today Nick Crafts University of Warwick

  2. General Purpose Technologies(Lipsey et al, 1998) • Over time are found to have many uses and complementarities … are pervasive • Initially have much scope for improvement • Eventually come to be widely used and lead to (large) rise in aggregate productivity growth BUT • Initially may have no positive impact on growth or even imply a slowdown phase

  3. The Solow Productivity Paradox You can see the computer age everywhere except in the productivity statistics Robert Solow, 1987

  4. Steam as a General Purpose Technology • Steam Engines, Railways, Steamships • James Watt’s Invention : 1769 • Liverpool & Manchester Railway : 1830 • Steamship crosses the Atlantic : 1838

  5. Sources of Power, 1760-1907 (Thousand Horsepower) Source: Kanefsky (1979a, p338); not including internal combustion engines

  6. Steam Engine Technology • Took a long time to become cost effective in most sectors • Coal consumption per hp per hour fell from 30 lb pre-Watt to 12.5 lb for Watt engine to 2 lb by 1900 when psi reached 200 compared with 6 in 1770 • The big breakthrough was not James Watt but the move to the high pressure steam engine after 1850

  7. Capital Cost and Annual Cost per Steam Horsepower per year (£ current) Note: the estimates are for a benchmark textile mill in a low coal cost region like Manchester

  8. Total Steam Contribution to Growth of Labour Productivity (% per year) Source: Crafts (2003): includes railway, steamships, steam engines

  9. Implications • Small contribution of steam pre-1830 helps explain Crafts-Harley view of industrial revolution • Strong contribution of steam power in second half of 19th century says climacteric not explained by hiatus between GPTs • Puts Solow Paradox into perspective

  10. ICT Contribution to US Labour Productivity Growth (% points per year) Source: Oliner and Sichel (2003)

  11. The Progress of ComputingReal Cost MIPS-E ($1998) Source: Nordbaus (2001)

  12. Impact of GPTs on Growth • ICT much bigger impact on American growth in recent past than steam ever had on UK growth • Costs of computing have fallen much faster than did costs of steam power • Society seems to be getting better at exploiting GPTs more rapidly

  13. Railway Capital Authorised (£mn) Source: Gayer, Rostow & Schwartz (1953)

  14. Railway Share Prices (June 1840=100)

  15. RAILWAY BENEFITS

  16. RATES OF RETURN • Average private rate of return = 5%, 1830-70 • Average social rate of return = 15%, 1830-70

  17. Lessons from Railways • Railway mania ended in tears • Profits from railways less than optimists had hoped • Users gained much more than investors

  18. Does Innovation Generate Supernormal Profits? (Nordhaus, 2004) • Innovators capture about 2% of the total socialgain from technological progress • Appropriability is low(7%) and depreciation is high (20% per year) • The US stock market valuation of ‘new economy’ firms grew between 1995 and 2000 at a rate that implied owners could capture 90% of the social gain

  19. NASDAQ Composite Index

  20. The New Economy and Stock Prices • It was a bubble but fundamentals (trend growth) had improved • Dot.coms experience would not have surprised someone who lived through the 1840s • Economic gains from ICT not a mirage but few of them will be reaped by investors

  21. Globalization • Enhanced integration of international markets • Promoted by reductions in transport and communications costs ….. both steam and ICT do this • But is the effect to centralize or disperse economic activity?...to promote divergence or convergence?

  22. Transport/Communication Costs • VERY HIGH: activity is dispersed • VERY LOW: activity is dispersed • INTERMEDIATE: agglomeration with feedback effects based on large markets and linkages

  23. Agglomeration Benefits • External economies of scale • Productivity rises with city size • Proximity to customers and suppliers • Thick labour market • Still very important and cannot easily be replicated

  24. Steam Power and Industrial Location • Reduced transport costs for goods rather than services both on land and at sea • Industry moved closer to natural resources • Manufacturing cities proliferated in Europe and North America • Centralizing not dispersing

  25. Real Cost of Ocean Shipping(1910 = 100) Source: Harley (1988)

  26. Steam-Powered Globalization • Helped manufacturing and finance • Hurt arable agriculture, especially land rents • Lancashire cotton textiles enjoyed an Indian summer

  27. Wheat Prices Sources: Harley (1980); Mitchell (1988)

  28. Lancashire Textiles and Globalization(Leunig, 2005) • Lancashire a high wage industry (6 xIndia and Japan in 1910) • But continued to dominate world trade (60% world market share in 1910) • Unit costs no higher than in India or Japan even before adjusting for quality • Lancashire flourished because of agglomeration benefits (productivity33%higher than rest of Britain)

  29. Regional GDP/Head(GB= 100)(Crafts, 2005)

  30. Coefficient of Variation of Regional GDP/Person Source: Crafts (2005)

  31. Globalization and the Regions • Both then and now regional income inequality rises with globalization • London then and “Greater London” now prosper while imports hurt the provinces • East Anglia suffered in 19th century and West Midlands in 20th century

  32. London as a Financial Centre • Agglomeration where size matters • Benefits from thick labour markets and importance of proximity for deal-making • Clerical jobs will increasingly be offshored • This will strengthen the core business

  33. UK Asset Management: Core BusinessOXERA (2005)

  34. UK Asset Management: Back-OfficeOXERA (2005)

  35. Death of Distance • “Greatly exaggerated” • ICT enables some things to go to the periphery but enhances the strengths of the core at the same time (e.g. strengthens London as a financial centre) • Like steam, ICT rearranges geography but doesn’t abolish it • Globalization requires sectoral and spatial adjustment

  36. Did Victorian Britain Fail ? • Choices of technique basically correct • Foreign investment profitable • Emulation of USA not feasible • Natural resources, economies of scale, non-universal technology: not a neoclassical world • New growth economics and new economic geography complicate the argument

  37. Pre-1914 Globalization • Driven by falling transport and communication costs • Protectionism increasing in product markets and USA a high tariff country • Massive international factor flows • BOTH capital and labor go from Old World to New World

  38. Anglo-American Wage Gap: % Contributions to Change, 1870-1913(O’Rourke, 1996)

  39. Why No Wage Convergence ? • TFP gaps increase because of British incompetence • USA develops its own non-transferable technology • USA benefits from increasing returns to scale and agglomeration economies sustained by migration

  40. Heckscher-Ohlin US comparative advantage from land abundance remains in agriculture Tariffs imply less trade and more migration New Geography Migration and increasing returns: virtuous circle of industrialization plus manufactured exports Tariffs imply more migration and promote switch in comparative advantage North Atlantic Economy

  41. American Overtaking of Britain • Best understood in the context of globalization • Reveals some limitations of neoclassical economics • May have no important policy implications

More Related