Governance, Growth and Global Leadership

The Role of the State in Technological Progress, 1750–2000

Espen Moe

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317125792
• Edition: 1
• Topic: History
• Subtopic: World History
• Index: History

This book focuses on the role of the state in promoting a country's long-term technological progress and industrial leadership. Throughout history, a nation's rise to dominance has invariably been followed by its fall; the dominant powers of today are not the same ones that controlled the world three hundred years ago. In the same manner, economic dominance has usually been fleeting, as leading nations have routinely been caught up and surpassed by challengers. This study looks at Schumpeterian growth - currently the most important source of economic growth - which credits the ability to use technological progress for the benefit of industrial leadership as the key motor of national development and economic success. Contrasting the experiences of five great powers (Britain, France, Germany, the USA and Japan) during five periods of technological and industrial leadership, from the Industrial Revolution to the beginning of the twenty-first century, the book draws on historical and comparative methods to draw causal inferences about international progress and leadership. It explores various factors that promote or hinder technological advancement and how these can in turn effect national development. It concludes that where states have forged ahead and maintained a lead over their rivals, it is because consensus and cohesion prevented vested interests from growing powerful enough to block structural economic change. By applying economic theory to long-term historical models, this book offers a fascinating perspective on the causes and effects of national growth and industrial leadership. It will be invaluable reading for anyone with an interest in international relations and global economic trends, both modern and historical.

Chapter 1
Introduction

Economic Growth, Technological Change, and Industrial Leadership

The story of long-term economic growth and development is an alluring one. The might of great powers has waxed and waned. Periods of peace and stability have been followed by turmoil and large-scale warfare. New dominant powers have risen from military victory, or peacefully, from economic prosperity. The most obvious observation that can be made about the international system is that for centuries, it has been in a state of flux. International leadership comes and goes. Today’s dominant powers are not the ones that controlled world politics 250 years ago.

Leadership is in many ways what this book is all about. How can leadership be preserved and maintained over larger periods of time? Why is it that some countries have been able to rise to a position of international leadership? And why is it that some countries have been able to maintain this position for so much longer than others? Is it inevitable that a country’s rise will ultimately lead to its demise, or can this cyclical waxing and waning of power somehow be stopped, so that the inevitability of the fall may be prevented?

The type of leadership that is the focus of this book is economic leadership. Obviously, economic and political leadership is intrinsically intertwined. Hence, economic leadership undoubtedly serves as one of the best predictors of political leadership. One of the reasons why we should be interested in economic leadership in the first place, is because of the consequences of economic growth and development for power relationships in the international system. Few things are more destabilizing to the international system than different powers growing at different rates. This is what makes weaker powers catch up and what ultimately dethrones the stronger power. It has happened on numerous occasions in the past, and it has happened to the countries whose stories I will tell over the next few chapters.

To explain economic leadership is to explain long-term economic growth and development. Economic growth is one of those apparently straightforward notions that nevertheless seem to elude us whenever we seek to investigate it more thoroughly. Countless books have been written, numerous theories advanced, and tons of empirical material produced. Economic growth has been a concern for historians, economic historians, economists, sociologists, political scientists, etc. It is the goal of any worldly ruler with the least bit of concern for his subjects, but it still seems so hard to achieve and so easy to miss.

However, economic leadership can mean a lot of things. Hence, instead of using for instance GDP, GDP per capita or GDP per capita growth as the yardstick for economic leadership, this book disaggregates the economies into singular industries. This means that the focus really is on industrial leadership. However, this is inextricably connected with overall economic growth and development. To a plethora of scholars, different growth industries have put their distinctive stamps on different time periods. In one sense the point is trivial. The growth industries of yesteryear are not the same as the growth industries of today. In a day and age where computer technology has revolutionized the way we do business, communicate, search for information, etc., it would have been very odd if the cotton textile industry of the early Industrial Revolution was still the world economy’s main engine of growth. New technologies give rise to new industries, to growth and prosperity. But eventually, they grow old and obsolete, and are replaced by newer industries that draw on more recent technologies.

In a different sense, the point is not equally trivial. This is a perspective that privileges certain industries over others, singling these out for particular analysis for the reason that they are deemed more important for overall growth and development than other industries. They are the industries that have been engines of the world economy. They have been important first, because in general they have been generic industries, drawing on generic technologies. In other words, they have been industries with multiplier effects on the overall economy through their contribution to other sectors. The real reason for the importance of for instance early to mid-nineteenth-century iron industry was not that iron smelting in itself was such a huge industry, but because iron was utilized by so many other industries and for so many purposes. Second, because they are industries that as a rule have drawn upon revolutionary technological breakthroughs. Technological breakthroughs have allowed major productivity improvements. But also, stemming from such breakthroughs, entire new industries have risen. Some of these new technologies have been so groundbreaking that they have transformed entire economies.

Why cannot just every country start employing new technology right away? This is the perspective taken by a host of textbook economic theory. Technology is a public good. Once a new technology has been invented, it is there for everyone to use (e.g. Fagerberg 1994:1149). However, diffusion of new technology is never immediate. It is usually a drawn-out process, since among other things, firms will try to protect the advantage provided by new technology to as great an extent as possible. Also, the necessary knowledge base for adopting new technology may not always be available yet to other firms. Moreover, diffusion across national borders is normally far slower than diffusion within a country. Hence, new and revolutionary technologies may give rise to growth industries, but not necessarily anywhere. Different economic growth rates in different countries lead some countries to forge ahead or catch up, and others to fall behind or be caught up with. Technological breakthroughs give rise to new and prosperous industries that can grow and develop relatively unhindered within a country. By innovating and staying technologically ahead a country can in certain industries, for all practical purposes, carve out for itself a monopolistic position, by steadily raising the bar for competitors. In such a way, new technology effectively serves as an entry-barrier against other actors. Hence, industrial leadership is inextricably linked to technological leadership. Consequently, this book is not only about industrial leadership, but about technological and industrial leadership.

This means that despite only focusing on specific industries, this book is about growth and development on a more overarching level. The industries singled out for analysis are industries that have been of particular importance. They are the industries that have been instrumental in the rise of some countries, and the demise of others. From this perspective, a country’s economic growth and development hinges on performing well in certain crucial industries, in particular industries drawing upon new technology. And from this perspective, this book is really about the technological and industrial rise and fall of the great powers.

The Role of the State: Governance and Growth

But the book is not just about technological and industrial leadership. It is about the state, or rather, the role of the state in promoting technological and industrial leadership. The state has for centuries been the dominant actor in international relations. It has also been the most important political actor in general, and while its importance has waxed and waned, it has always been among the main actors. Since the Industrial Revolution, technological change has become the most important source of economic growth, and thus of power and leadership in the international system. Different rates of technological change lead to unequal rates of growth in different countries. This destabilizes the international system. It is hugely beneficial for the countries that take advantage of it, but leads to stagnation, backwardness and ultimately obscurity for those countries less skilled at it. Drawing on the obvious observation of the rise and fall of the great powers in the international system; is there something that the state can do in order to prevent the fall? Is there something that it can do in order to encourage and promote technological change and industrial leadership? And is there something that the state might conceivably do in order to prevent technological and industrial dominance from being only a one-shot success? Is there a role for the state in achieving long-term economic dominance, beyond singular technologies and industries, and beyond specific time periods?

There are valid theoretical reasons why this should be the case. While the role of the state in technological progress and industrial leadership is by no means an angle ignored by any majority of scholars, consensus on how the state relates to issues of technological progress and industrial leadership keeps eluding us. The approach chosen here is a combined focus on the state and on technological progress and industrial leadership. The role of the state is one of creating conditions that are conducive to unlocking the creative potential of the population, to stimulating and diffusing knowledge and innovation, and promoting the growth of new and promising industries.

Which are the technologies and industries that will be analyzed over the following chapters, over what time interval and for which countries? The book covers a time-span of 250 years, starting with the Industrial Revolution and ending with the present. Going back to the start of the Industrial Revolution, there is no doubt that the first major growth industry was cotton textiles. Obviously, by picking the Industrial Revolution as the starting point, one suggests that this event represents something special, a take-off-point of some kind. Contemporary economic research has de-emphasized the role of the Industrial Revolution in that respect, stressing gradual rather than revolutionary change. No mechanical revolution happened overnight, and the Industrial Revolution may be a less obvious starting point for a study of industrial leadership than the name suggests. Still, while less than a revolution, it counts as a milestone in human history, and for that reason alone is a worthy and obvious point of departure. The British cotton textile industry is routinely considered the world’s first real industry, inherently intertwined with the Industrial Revolution.

When growth in cotton textiles could no longer spur on the British economy in particular, the iron industry took over. Hence, the choice of cotton textiles for the early Industrial Revolution, starting around 1760–1780 and running out of steam some time after the end of the Napoleonic Wars, followed by iron for the early to mid-nineteenth century, were obvious. For the third growth industry, stretching from the late nineteenth century on toward World War I, the task was trickier. Toward the mid- to late nineteenth century, three new major industries emerged, growing to become as important as iron had once been—steel, electric industry and chemical industry. Steel and electrification would have been worthy choices. However, while not the only possible choice, the chemical industry was as natural a choice as steel or electricity. First, chemicals is a generic industry, and thus has major multiplier effects on the economy as a whole, although this is also the case with steel and electricity. Second, the chemical industry is often referred to as the first science-based industry, representing a shift in the sense that for the first time, a university education was now essential in order to achieve industrial success. Then again, electric industry can also be said to have been science-based. Third, in the chemical industry, it is possible to discern quite different approaches to economics and to industry in different countries. This makes it easier to tease out potential causal variables. For the interwar years, the main new development was mass-production. However, since this is a mode of production, and not an industry, an industry still has to be selected, and the automobile industry is an easy choice. Finally, the present-day period sets the stage for a chapter on industries derived from information and communication technologies (ICTs).

Through five time periods, the book covers the growth experiences of Great Britain, France, Germany, the US, and Japan. They have not been included for each and every time period and industry—for that there would have had to be both a volume II and III ... However, they are all countries that have possessed or aspired to industrial leadership. They are, or have all been, great powers, at some stage either dominating or aspiring to global leadership. Britain was the first industrial superpower, and is an obvious inclusion, but is also interesting because its powers ultimately waned. First, how was it that a small, and for long inconspicuous and peripheral, island nation grew to become the world’s economic and industrial powerhouse? And how was it that this power, which at its peak produced more than 50 per cent of the world’s iron, two thirds of the coal, 50 per cent of world cloth production and generating roughly a quarter of world trade, half a century later was surpassed not just by the US, but by Germany as well? France was the perennial challenger, with aspirations of both economic and political domination. It was more populous than Britain, had a larger territory, an abundance of good soil, and a huge army. Still, it found itself losing out to Britain on most accounts and then gradually also to other countries. Germany very rapidly became the industrially and militarily dominant European power toward the end of the nineteenth century, rising from the utter political fragmentation of the Holy Roman Empire in record time.

Still, German efforts were in many respects overshadowed by those of the US, which after the Civil War industrialized extremely rapidly. And this growth only continued, persisting until the present day, making the US the prime example of a power that has forged ahead, but not yet started its possibly inevitable decline. Finally, there is Japan, which rose from the ashes after World War II, challenging the US for leadership in mass manufacturing, but ultimately failed to translate its manufacturing prowess into leadership in ICTs.

From a historian’s point of view, these are all interesting countries, industries and time periods in and of themselves. However, there is a more overarching purpose. Each country and industry provide us with pieces to a larger puzzle: Why is it that some countries have been able to ride the waves of technological change, in the process fostering new and prosperous growth industries, whereas others have not? Why is it that some countries have been able to preserve their power, whereas other countries rose and fell?

Technological Progress and Long-Term Economic Growth

Theories of Economic Growth

Despite the enormous literature in the field, holes still remain to be filled. With respect to the state and technological change, there is a solid strand of literature organizing its subject matter in terms of case studies of particular periods of technological change and/or industrial growth. For instance, there exists a massive amount of case studies on the Industrial Revolution. And there are studies comparing industrialization in for instance Britain with similar processes elsewhere. There are also numerous studies on other periods of technological change. The story of Germany and the late nineteenth-century chemical industry is a familiar one, as is that of the rise of Japan to an industrial superpower. In other words, there is a wealth of literature on specific processes of structural change. What is lacking is knowledge about the causes of technological change in general, on an overarching level. In other words, a number of studies have provided causal arguments about specific countries and time periods, but there is a relative scarcity of attempts at causal inference about the general phenomenon of technological change (and industrial growth).

On the other hand, there is also a literature on general technological change. Historians and social scientists have identified epochs of technological change, and sought to come up with general characteristics of these epochs. Often, these studies are organized according to historical periods, seeking to outline the contribution of technological change to long-term growth and to international economic hegemony. However, while these accounts make inferences about technological change and industrial leadership, they rarely seek to explain what it is that causes change and leadership per se. In other words, in one sense, what is supposed to be explained—long-term growth and development—is essentially left unexplained by using a proxy for growth, namely technological change and industrial leadership, as the independent variable. Further, these accounts rarely have an institutional side, and they seldom make any conjectures about the role of the state beyond vague references to the importance of education, openness, cohesion etc. What is also often lacking is a comparative perspective. They do not compare processes of change between countries in order to explicate why change happened in one country and not somewhere else. They explain the role of technological change for economic growth, but do not go further.

Hence, one strand treats technological change as what is to be explained, but chooses its cases so that conclusions can only be drawn about technological change and industrial leadership within one particular time period. And a second strand tries to make inferences about technological change and industrial leadership in general, but treats technology as the cause, and is thus better able to make inferences about the effects of technological change, rarely touching upon any role of the state. Both strands cover interesting ground, but leave plenty of room for a different project: Is it possible to say something about the role of the state in promoting technological progress and industrial leadership in general, across time and space? What are the conditions that are conducive to technological change and industrial prowess, and how does the state go about promoting this? This is the project that unravels over the next few chapters.

Regarding technology and growth, this book draws particular inspiration from a few scholars that deserve special attention: Works by Nelson (1995; 2002), Nelson and Winter (1982), Freeman and Perez (1988); Freeman and Soete (1999); Freeman and Louçã (2001) and Perez (2002), are invaluable with respect to evolutionary economics, technological change and important sectors. Works by Modelski (1996; 2001) and Thompson (1996; 2000) are extremely important for their international relations perspective on leading sectors and technological change. North (1990) deserves special mention, not so much for his focus on institutions, as for his explicitly linking institutions to long-term growth, suggesting that institutional differences between countries can explain difference in long-term growth performance. Doing this, he is one of comparatively few people to link evolutionary economics and institutions. Mokyr (1990; 2002a) is significant for similar reasons. His treatment of knowledge and his emphasis on its use and diffusion is placed in an evolutionary setting. Also, his exposition of evolutionary economics—its biological roots, main assumptions and relevance—is exemplary. Finally Landes (1969; 1998) is less explicitly evolutionary, but important for his clear emphasis on innovation and creativity, on the unlocking of the human potential as the key to long-term growth and development.

Numerous approaches and scholars could (and should) be mentioned. Just a few will have to suffice. For 50 years, neoclassical economics has been the...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Tables
• General Editor’s Preface
• Acknowledgements
• 1 Introduction
• 2 The Cotton Textile Industry
• 3 The Iron Industry
• 4 The Chemical Industry
• 5 The Automobile Industry
• 6 Information and Communication Technologies
• 7 Conclusions
• Bibliography
• Index