Technology and economic growth
Economists have become accustomed to associating long-term economic growth with technological progress; it is deeply embedded in the main message of the Solow- inspired growth models, which treated technological change as exogenous, and even more so in the endogenous growth models.[36] An earlier growth literature regarded technology as a deus ex machina that somehow made productivity grow miraculously a little each year.
The more modern literature views it as being produced within the system by the rational and purposeful application of research and development and the growth of complementary human and physical capital. The historical reality inevitably finds itself somewhere in between those two poles, and what is interesting above all is the shift of the economies of the West in that continuum. Whatever the case may be, technology is central to the dynamic of the economy in the past two centuries. Many scholars believe that people are inherently innovative and that if only the circumstances are right (the exact nature of these conditions differs from scholar to scholar), technological progress is almost guaranteed. This somewhat heroic assumption is shared by scholars as diverse as Robert Lucas and Eric L. Jones, yet it seems at variance with the historical record before the Industrial Revolution. That record is that despite many significant, even pathbreaking innovations in many societies since the start of written history, it has not really been a major factor in economic growth, such as it was, before the Industrial Revolution.Instead, economic historians studying earlier periods have come to realize that technology was less important than institutional change in explaining pre-modern episodes of economic growth. It is an easy exercise to point to the many virtues of “Smithian Growth”, the increase in economic output due to commercial progress (as opposed to technological progress).
Better markets, in which agents could specialize according to their comparative advantage and take full advantage of economies of scale, and in which enhanced competition would stimulate allocative efficiency and the adoption of bestpractice technology could generate growth sustainable for decades and even centuries. Even with no changes whatsoever in technology, economies can grow in the presence of peace, law and order, improved communications and trust, the introduction of money and credit, enforceable and secure property rights, and similar institutional improvements [Greif (2005)]. Similarly, better institutions can lead to improved allocation of resources: law and order and improved security can and will encourage productive investment, reduce the waste of talent on rent-seeking and the manipulation of power for the purposes of redistribution [North (1990), Shleifer and Vishny (1998) and Baumol (2002)]. Tolerance for productive “service minorities” who lubricated the wheels of commerce (Syrians, Jews and many others) played important roles in the emergence of commerce and credit. Economic history before 1750 is primarily about this kind of growth. The wealth of Imperial Rome and the flourishing of the medieval Italian and Flemish cities, to pick just a few examples, were based above all on commercial progress, sometimes referred to as “Smithian Growth”.[37]It is usually assumed by economists that sustained economic growth is a recent phenomenon simply because if modern rates of growth had been sustained, a simple backward projection suggests that income in 1500 or in 1000 would have been absurdly low.[38] Clearly, growth at the rates we have gotten used to in the twentieth century are unthinkable in the long run. Yet it is equally implausible to think that just because growth was slower, there was none of it - after all, there is a lot of time in the long run. One does not have to fully subscribe to Graeme Snooks’ use of Domesday book and Gregory King’s numbers 600 years later to accept his view that by 1688 the British economy was very different indeed from what it had been at the time of William the Conqueror.
Adam Smith had no doubt that “the annual produce of the land and labour of England... is certainly much greater than it was a little more than century ago at the restoration of Charles II (1660)... and [it] was certainly much greater at the restoration than we can suppose it to have been a hundred years before” [Smith (1976 [1776], pp. 365-366)].[39] Onthe eve of the IndustrialRevolution, large parts of Europe and some parts of Asia were enjoying a standard of living that had not been experienced ever before, in terms of the quantity, quality, and variety of consumption.5 Pre-1750 growth was primarily based on Smithian and Northian effects: gains from trade and more efficient allocations due to institutional changes. The Industrial Revolution, then, can be regarded not as the beginnings of growth altogether but as the time at which technology began to assume an ever-increasing weight in the generation of growth and when economic growth accelerated dramatically. An average growth rate of 0.15-0.20% per annum, with high year-to-year variation and frequent setbacks was replaced by a much more steady growth rate of 1.5% per annum or better. Big differences in degree here are tantamount to differences in quality. This transition should not be confused with the demographic transition, which came later and whose relationship with technological progress is complex and poorly understood.6This is not to say that before the Industrial Revolution technology was altogether unimportant in its impact on growth. Medieval Europe was an innovative society which invented many important things (including the mechanical clock, movable type, gunpowder, spectacles, iron-casting) and adopted many more inventions from other societies (paper, navigational instruments, Arabic numerals, the lateen sail, wind power). Yet, when all is said and done, it is hard to argue that the impact of these inventions on the growth of GDP or some other measure of aggregate output were all that large.
The majority of the labor force was still employed in agriculture where progress was exceedingly slow (even if over the long centuries between 800 and 1300 the three-field system and the growing efficiency at which livestock was employed did produce considerable productivity gains).Moreover, it is true for the pre-1750 era - as it was a fortiori after 1750 - that technology itself interacted with Smithian growth because on balance improved technology made the expansion of trade possible - above all maritime technology in all its many facets, but also better transport over land and rivers, better military technology to defeat
occurrence of economic growth in Britain, though their figures indicate a much slower rate of growth, about a 111 percent growth rate between 1086 and 1470 [Britnell (1996, p. 229)], which would require more economic growth inthe sixteenth and seventeenth centuries than canbejustifiedto square with Snooks’ numbers. Engerman (1994, p. 116)assesses that most observers will agree with Snooks’ view that by 1700 England had a high level of per capita income and was in a good position to “seek the next stage of economic growth”. Yet clearly he is correct in judging that “modern” economic growth (prolonged, continuous, rapid) did not begin until the early nineteenth century.
5 Indeed, many historians speak of a “consumer revolution” prior to the Industrial Revolution, which would be inexplicable without rising income before 1750. Lorna Weatherill (1988) suggests that if there was a Consumer Revolution at all, it peaked in the period 1680-1720. Moreover, consumer revolutions were taking place elsewhere in Europe. Seventeenth century Holland was, of course, the most obvious example thereof, but Cissie Fairchilds (1992) has employed probate records to show that France, like England, experienced a consumer revolution, albeit fifty years later.
6 It is in that sense that the view of modern economists [e.g. Galor and Weil (2000, p.
809)] that “the key event that separates Malthusian and post-Malthusian regimes is the acceleration of the pace of technological progress” is a bit misleading, since it draws a link between technological progress and demographic change that thus far has not been closely examined.pirates, better knowledge of remote lands, and the growing ability to communicate with strangers. A decomposition of growth into a technology component and a trade-and- institutions component must take into account such interactions.
All the same, the main reason why technological progress was at best an also-ran in the explanation of economic growth before 1750 is that even the best and brightest mechanics, farmers, and chemists - to pick three examples - knew relatively little about the fields of knowledge they sought to apply. The pre-1750 world produced, and produced well. It made many pathbreaking inventions. But it was a world of engineering without mechanics, iron-making without metallurgy, farming without soil science, mining without geology, water-power without hydraulics, dye-making without organic chemistry, and medical practice without microbiology and immunology. Not enough was known to generate sustained economic growth based on technological change.[40] Such statements are of course to some extent provocative and perhaps even irresponsible: how can we define “relatively little” in any meaningful sense? Who knew “that which was known” and how did they use it? In what follows I shall propose a simple framework to understand how and why new technology emerged and how it was limited before the eighteenth century and subsequently liberated from its constraints. I will then argue that “technological modernity” means an economy in which sustained technological progress is the primary engine of growth and that it depended on the persistence of technological progress. What is needed is a good theory of the kind of factors that make for sustained technological progress.
Such a theory needs to stress the basic complementarity between the creation and diffusion of new technology and the institutional factors that allowed this knowledge to be applied, become profitable, and lead to economic expansion. These institutional factors - such as the establishment of intellectual property rights, the supply of venture capital, the operation of well-functioning commodity and labor markets, and the protection of innovators and entrepreneurs against a technological reaction - are of central importance but they have been discussed elsewhere [Mokyr (1998b, 2005a)] and in what follows the focus will be on the growth of knowledge itself. All the same, it should be kept in mind that growth cannot result from a growth of knowledge alone. It needs to occur in an environment in which knowledge can be put to work.
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