EC120 week 09, topic 8, slide 1

Trade and the Spread of Modern Industry

Topics:

• Trade at the dawn of the Industrial Revolution

• British trade during the Industrial Revolution

• Sources of the gains from trade

• Trade and Industrialisation in Continental Europe

• Modernisation in the European Periphery

• Rest of the World: very brief overview

• Patterns of change: similarities and differences

Long-Distance Trade, mid-18th Century

• European expansion from early 16C reaches dominance by 18C

• Changing patterns within Europe: “North” displaces “South”

• Centuries-old trade within Europe continues its growth

• Sea-borne trade with East/South Asia: high value/weight goods in exchange for European silver (plundered from the Americas)

• Atlantic Economy grows in importance – “triangular” trade

• National rivalries for economic power

• Trade encumbered with restrictions and tariffsEC120 week 09, topic 8, slide 2

EC120 week 09, topic 8, slide 3

British Trade in the Industrial Revolution

• Focus on Britain, c1700−1860Were exports an “engine of growth”?

• Exports– Manufactures and semi-manufactures,

increasingly important service sector

– Large re-export trade (supported by Mercantilist restrictions)

• Imports (grew faster than exports)– Mainly raw materials (esp. cotton) and `groceries’ (e.g.

sugar, tea, coffee, spices); bulk foodstuffs (e.g. wheat, meat) from mid/late 19th century.

EC120 week 09, topic 8, slide 4

Interpretation and explanation (1)

• Trade and industrialisation enabled population growth

• Controversies:

– Was industrialisation driven by `demand’ or `supply’?Demand for exports from abroad, orSupply of exports from Britain (or both)

– What were the sources of the gains from trade?

EC120 week 09, topic 8, slide 5

Interpretation and explanation (2)Demand versus supply as causes of industrialisation

• Exogenous increase in exports -> increased demand

• Technological advance -> lower costs -> increased supply

• Dominant current view: supply was more important than demand

• But don’t forget the `Industrious Revolution’– Increased domestic market demand and hence

industry

EC120 week 09, topic 8, slide 6

Sources of the gains from trade (1)

• Exploitation: Britain benefited from mercantilist policies and naval power

• “Williams Thesis”: profits of slavery funded industry

– Cotton textile industry relied on cheap raw cotton

– Slave labour enabled low-cost production

– But just how big were the profits?

EC120 week 09, topic 8, slide 7

Sources of the gains from trade (2)

• Comparative advantage: gains from trade if countries differ in the relative costs of producing different goods

– International trade is a positive sum game: all benefit

– Heckscher-Ohlin theory: focus on factor endowments

• Dynamic gains from trade

– Economies of scale: greater production, lower unit cost

EC120 week 09, topic 8, slide 8

Trade & Industry in Continental Europe

• Landes emphasises `culture, values, initiative’• Three constraints on economic modernisation:

1. Peasantry, control and dominance of agriculture

2. Organisation of manufacturing, restraints on trade

3. Natural barriers and man-made boundaries• Economic nationalism versus regional

development

EC120 week 09, topic 8, slide 9

Early industrialisers 1: Belgium

Belgium (independent in 1830):

• Long industrial tradition

• Access to natural resources, especially coal

• Location favoured commerce & finance

• Industrial development similar to parts of Britain

• Its experience emphasises role of region in economic development

EC120 week 09, topic 8, slide 10

Early industrialisers 2: France

• Sustained economic growth began in 18th century

• Low rate of population growth

• Limited endowments of coal and iron ore

• Low rate of urbanization

• High standard of scientific knowledge and invention

• Strong, interventionist state institutions

EC120 week 09, topic 8, slide 11

Early industrialisers 3: Germany

• Political fragmentation until after 1815• Unification via expanding customs unions• Promotion of modern technology & scientific

education• Dominated large scale heavy industry from 1870s• Finance: development of universal banks from mid-

19C

EC120 week 09, topic 8, slide 12

Modernisation in the European Periphery

• Iberian Peninsula: reactionary states resist reform

• Italy: modernising north, more backward south

• South East Europe: limited natural resources

• Eastern Europe: repressive “new serfdom”

• Russia: repressive landed autocracy

• Scandinavia: small, well-educated populations

Rest of the World: very brief overview

• American (USA) exceptionalism – An economic offshoot of Europe, huge size, abundant

resources– Rapid population growth, agricultural dominance in

ante-bellum era, comes to industrial dominance in late 19C

• Latin and South America– Continued dominance of imperial Spain and Portugal– Agriculture remains dominant for trade with Europe

• Middle East and Asia – Ottoman Empire: resisted its long, slow decline– India: participated in trade, dominated by Britain– China: resisted foreign incursions; internal discord– Japan: an Asian exception, imitated Europe after 1868

EC120 week 09, topic 8, slide 13

EC120 week 09, topic 8, slide 14

Patterns of Change: Similarities & Differences

• Alexander Gerschenkron: “relative backwardness”

– Pattern of industrialization depends on when it occurs

• Sidney Pollard: “differential of contemporaneousness”

– Impact of `events’ depends on stage of development