Global trade as an engine of the Industrial Revolution

This article was originally posted by Revista Libertalia: https://www.revistalibertalia.com/single-post/2020/10/25/Global-trade-as-engine-of-the-Industrial-Revolution 

Research on Economic History has been going on now for at least one century. Many interesting discoveries have been made and frontiers of knowledge and research have been expanded to previously unknown limits. This doesn’t mean that academic debates on the vast majority of historical topics have ceased or that a consensus has been reached on many of those themes. Actually, it has been quite the contrary, being precisely that expansion of research and knowledge frontiers the flame igniting many interesting debates, as the one regarding the main causes of Britain’s industrialisation and the relative importance these factors had in the decades prior to the Industrial Revolution in Britain. This article will concentrate on analysing the relevance of trade in regard to Britain’s industrialisation and which other multiple factors could have also contributed to accelerating this process. For this, I will first introduce and analyse the arguments of several economic historians who defend the idea of trade expansion having been the central and most important cause leading to the Industrial Revolution in Britain, as is the case of Inikori (2002), who meticulously analyses the role of Africans in Britain’s Commercial Revolution -studying and developing William’s (1994) work- and consequently in its industrialisation, or Berg (2004). Afterwards, I will look at the arguments presented by some other economists, political scientists and historians who argue that even trade having been important for the development of Britain prior to the Industrial Revolution, it wasn’t a crucial factor for Britain’s industrialisation. These authors give greater relative weight to alternative causes as urbanization, capital accumulation, sudden increases in agricultural productivity or changes in factor prices leading to technological innovation; as is the case with Allen (2017), or those that pose greater importance on the development and reinforcement of political and economic institutions in the decades preceding the Industrial Revolution; as Acemoglu, Johnson and Robinson (2005) do, or Harley (2004) who argues that economic development and growth were prior to the eruption of large scale trade and commercial relations. Finally, other economists, as is the case with Brenner and Isett (2002) argue that trade wasn’t important just in giving place to the Industrial Revolution, but overall, to prevent an ecological and demographic crisis prior to the eighteenth century.

It was not until the later seventeenth and eighteenth centuries, as Berg (2004) explains, when trade started to revolutionise the British economy. According to this historian it was precisely the established link between the East and the West what contributed the most to a wide expansion of consumption, and consequently of industry in Europe. This consumption boom was closely related to luxury goods, which mostly came from Asia and underpinned the first phase of the late seventeenth and eighteenth-century trade and consumption booms. Here Berg (2004) makes an important remark in relation to technological transfer and adoption at this point of the trade relations between Asia and the West. Even though Western countries imported luxury products as fine fabrics or pottery, the technology and skills employed to produce these goods were not imported. British technological development at the time wasn’t centred on being able to produce direct substitute goods to Asian imported consumer goods, but instead, in generating a diverse and ample range of goods that catered the demand for certain luxuries of European consumers at the time.  This author claims that even though trade has recently been neglected as the main cause leading to British industrialisation by younger economic historians, the fact that Europe’s technological development followed incentives generated by the need to compete with Indian and Asian producers in a global interconnected market can’t be rejected. This points to the great impact international trade had on fostering technological development by introducing new consumption frameworks and styles, with this new consumerism establishing renewed spending patterns that lead to an industrial culture never seen before.

Developing his argument, Berg (2004) explains how what he denominates as the “industrious revolution” permitted a reallocation of household labour and consumption habits in a market-centred way, fostering one of the first stages of women emancipation in the West, as it were (and still are) women the ones in charge of the majority of household labour. Women became a crucial decision maker in terms of consumption and increased their relevance in market-oriented production, granting them some degree of independence, which would be fostered later on at further stages of the Industrial Revolution. Even though this author defends trade and commercial expansion as having been the main cause of Britain’s industrialisation, he doesn’t turn his back either to other relevant causes that could have prompted or at least accelerated this process, as was import substitution industrialisation (ISI), which basically consisted in governments employing tariffs, quotas and other restrictions on imports to build up domestic demand for manufactured goods, leading to a more self-sufficient industry, which caused British industry to increase its efficiency levels and develop modern technologies. These economic policies have recently been related to modern day versions of the infant industry theory, as those defended in recent years by Marxist development economists as Shaapera et al. (2019).

ISI definitely played an important role in Britain’s industrialisation, as shown by Inikori (2002) who portrays how the substitution of imports for domestic goods, accompanied by a growth of the demand for industrial products lead to further incentives for industrialisation. This author shows how the rise in demand levels for industrial products came from a variation in demand due to certain income redistribution processes along with increases in per capita income levels. Inikori (2002) demonstrates how, following the typical Engel’s Law model, a certain increase in income caused demand for basic goods as food to rise just up to a saturation point after which the income differential was directed to demand for higher order goods. Inikori (2002) also highlights the importance ISI had in entailing imports of intermediate and capital goods, which were used in the manufacturing process of industrial output. The fact of developing ISI whilst maintaining active almost all of Britain’s trade routes and links allowed for the invention and development of newer technologies for production, both of goods directed to internal demand and those for export. However, Inikori (2002) puts special emphasis on the fact that the actual success of ISI policy depended on what happened after industrial output reached the maximum absorption capacity of the domestic market, when external markets should be reached, and international trade fostered and expanded.

Authors as Eric Williams (1994), in his book Capitalism and Slavery, construct a model based on a triangular trade structure, highlighting the prominent role Atlantic African slaves trade had on the development of commerce, and how the British Industrial Revolution developed on top of it. Williams (1994) relates how British manufactures were sold in Western Africa in exchange for slaves, which were later on traded in the West Indies, where they were put to work at plantations of consumer goods such as sugar, cotton or cocoa, which were finally exported to the West, due to high demand for this exotic products from new consumerist tendencies, as described earlier. Williams (1994) shows the relevance and prominent role of slaves in each of the three sides of the described triangular trade structure, demonstrating how slavery and exploitation had large weight in the development of trade, and consequently in that of the primary phases of the British Industrial revolution.

An argument I found interesting and which helps to have an overview of other dimensions and factors related to trade, is that of Brenner and Isett (2002), who demonstrate how in England, in contrast to nations as China, economic agents weren’t able anymore to sustain themselves through possession of the means of subsistence and could  no longer depend only on the national market. So, to be able to increase their profit rates, they had to compete in the international market, allocating their resources more efficiently through new trade routes and structures. This allowed Britain to follow a Smithian pattern of economic development in the eighteenth century -by amplifying the range of accessible markets-, which prevented an ecological or demographic crisis due to the previously predicted Malthusian collapse.

On the other hand, some authors as Allen (2017) argue that other causes such as factor endowment, factor prices or imperialism had greater relevance than trade itself in the economic development of Britain and its way to the Industrial Revolution. Allen (2017) doesn't reject trade as an important factor for the socioeconomic development of Britain from the eighteenth century onwards, but argues that it was accompanied by multiple other factors -some due to state interventions, others due to geography, etc.- of greater relevance and without which trade wouldn’t have played such a big role. This historian analyses Britain’s development from the sixteenth century onwards from a supply-side perspective, arguing that Britain as a nation responded to the global challenges and demands posed at the time, being the Industrial revolution that large scale reaction. In this same line, the author argues that if Britain was capable of outcompeting other Western powers as Italy or the Low Countries in markets as that of textiles, it was mainly due to the domination over colonies and mercantilist policies of protectionism with naval power playing a big role in the defense and closure of Britain’s trade routes. Control over colonies guaranteed the British economy low prices for certain raw materials, as those employed in the textile industry, and also opened up exclusive new markets for its exports. Allen (2017), in his book shows how natural factor endowment and geography played a crucial role in the development of Britain from the seventeenth century. The expansion of manufacturing and the consequent urbanisation process had a lot to do with the abundance and low prices of coal in Britain.

As Allen (2009) shows, the population explosion in London from 50,000 people in 1500 to nearly half a million in 1700, caused serious shortages of wood fuel, which caused its price to rise and forced the manufacturing industry and consumers to look for alternative sources of energy, which they found in coal. Allen (2009) presents the evolution in terms of price of both fuels, varying from being both at the same price per million BTU’s in the fifteenth century, to wood fuel being twice the price of coal by the end of the sixteenth century. In terms of factor prices’ analysis, Allen (2009) points out how at the exchange rate of the time, British wages were much higher than those of its competitors, being especially high in northern counties. This promoted a less labour dependent production model, with labour-capital ratios decreasing following greater investment in technology, as machines for the manufacturing industry, looking for lower costs of production and the opportunity to outcompete other global powers in the international market by offering lower prices through higher productivity and efficiency. Furthermore, Allen (2017) argues that the growth of cities and higher wages were the two main factors that lead to the stimulation of agriculture, as the strong demand from food arising from these two factors lead to the conversion of arable land into pasture, and small holdings into large farms, consequently employing less people per acre and increasing productivity levels.

Finally, other authors, as Acemoglu, Johnson and Robinson, present alternative arguments for Britain’s development and the causes of the Industrial Revolution. Through empirical research they show how the growth of Atlantic trade and nations with access to this ocean, gave greater economic and political power to merchant groups, which lead to institutional change and a consequent constrain of the power of medieval political institutions, like absolute monarchs. This institutional development permitted a strengthening of private property rights in Western Europe, with especial emphasis in Britain, being this institutional development key for future economic growth.

In conclusion, through this article we have seen how trade was an essential cause for Britain’s economic development prior to the Industrial Revolution, while many other factors as raw materials endowment, geography, African slavery colonial exploitation, factor prices or institutional development, while also being closely related to trade, were differential causes that explain why the Industrial Revolution was firstly British and the expanded to the rest of the globe.

References:

• Acemoglu, D., Johnson, S. and Robinson, J. (2005), "The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth." American Economic Review, 95 (3): 546-579

• Allen, R. (2009), “Why was the Industrial Revolution British?”, VoxEU: https://voxeu.org/article/why-was-industrial-revolution-british

• Allen, R. (2017), The Industrial Revolution: A Very Short Introduction, pp.22-42

• Berg, M. (2004), “In pursuit of luxury”, Past and Present, Oxford University Press.

• Inikori, J. (2002), Africans and the Industrial Revolution in England, CUP.

• Brenner, R. and Isett, C. (2002), “England's Divergence from China's Yangzi Delta: Property Relations, Microeconomics, and Patterns of Development”, Journal of Asian Studies.

• Harley, C.K. (2004), "Trade: discovery, mercantilism and technology" in R. Floud and P. Johnson (eds) The Cambridge Economic History of Modern Britain, Vol. 1 (2004), pp.175- 203

• Williams, E. (1944), “Capitalism and Slavery”.