The industrial revolution: a dance of progress and poverty
The industrial revolution: a dance of progress and poverty
The industrial revolution was the result of Britain’s the eighteenth century empire, that focused world wide demand for manufactured goods onto Britain’s handicraft industries like spinning and weaving. These boomed creating a higher wage structure than elsewhere in the world and cheaper energy to fuel the growing cities. Inventors designed machines to economize on the expensive labour. Factory production destroyed the handicraft manufacturers in the first half of the nineteenth century. Wage inequality rose dramatically as the hand trades collapsed, and average wages remained flat as capitalists gained from rising productivity. It was not until after 1850 that the handcraft sector was liquidated and average wages rose in step with productivity.
good morning everyone and welcome today we have the honor of having with us one of the most prominent professors of economic history is definitely one of the top professors of economic history bob allen is a professor of economic history who has devoted his life to economic development technological change environmental history and public policy as well and then he carried out a study on the extinction of wales and i will ask him why then so he's really very eclectical he has a very rich experience teached in vancouver at the british columbia university then since 2001 in oxford since 2013 at the new york university and now since 2013 has been teaching in a new york university uh in abu dhabi and oxford university where is a researcher and a member of the faculties published a number of books that marked the interpretation of economic history and i'll mention only three of them but of course it published much more than three and the relevance of all the other books is definitely at the same level of the ones i'm going to mention so far to factory interpretation of the industrial soviet uh revolution in 2013 very interesting book where he let's say revitalizes the role of planning in the first part of soviet uh industrial revolution and then in 2009 he published another very innovative book and i'll spend some time on this namely the british industrial revolution in a global perspective and then another very nice booklet with great value global economic history a very short introduction and then he published extensively and it was awarded numerous prizes and acknowledgements but what is perhaps most interesting about robert allen is that he focused particularly on reading economic history where the factors of production the cost of capital wages and the cost of energy for the factors that explain why certain events have occurred in some geographies of vis-a-vis others to do so he very accurately reconstructed the cost structure the labor cost structure the capital cost structure the cost of living in various ages and in various places using a whereby the cost of wage or the cost of capital and and so on and so forth has been uh translated into a silver equivalent so the silver equivalent of a worker in vienna in 1870 was equivalent to do a certain amount of silver or certain amount of grams of silver so clearly those wages were paid with different currencies with the complete different uh purchasing paths but he managed to re uh say construct ever these cost structure very effectively very accurately so by assessing the cost of capital cost of energy the cost of wages allen identified the factor that terms protection to innovation in the combination of some of these factors and then of course propagation to innovation is what then determines the wealth of a certain area of a certain region or a certain country and is what triggers the well known processes of the first industrial revolution that were then replicated in the following revolutions in uh allen's book innovation is seen with a kind of romantic eye and allen shows that during the first industrial revolution namely the revolution that changed completely the production systems worldwide and started a very long development process that changed our way of living in our towns and cities as well um was determined so the first industrial revolution was originated from the desire of earning money and con and from the fact that in those days in the uk the cost of of labor and the cost of energy ratio was particularly february favorable and this explains why the industrial revolution took place in the uk and not in germany in france so the tools he uses help us understand why certain countries are richer than others why for instance around the 1500 the wages were similar in asia and europe and 400 years later such wages are completely different bob allen enjoys a vintage point when telling about these complex events then i must say that the british professor of economic history right very very well and so he explains how we shifted from the use of coal to melt iron how we how the advent of the steam engine occurred and why japan for instance managed to shift from the middle age ages to modernity in half a century while other countries failed and it tells everything about it as if this very complex history of uh human being were novel which in fact it is so we are now on the verge of a new industrial revolution which we still fail to understand and we have no idea what impact as such a revolution will have on our society and our labor market and allen is the best position to make us understand who the winners and the losers will be in this new age by providing us with an interpretation of the previous industrial revolutions and now bob harlan flourish to you thank you marco for that uh very generous introduction that uh reminded me of my theme so this is it's an excellent trailer this is what you're going to hear about and thank you very much to uh the organizers for inviting me here it's a great pleasure i'm very impressed by the event and thank you all for coming normally we academics only speak to students who are forced to sit in front of us and listen or to other academics so it's a great pleasure to be able to talk to an interested and intelligent audience so thank you for coming i'm going to talk about technology and world history and its uh implications for human well-being uh we're going the wrong way here um uh the the whole theme of this conference is about uh technology and the labor market and who's going to be winner how what's going to be our fate with the new technology technologies that are uh being adopted today but i want to begin by uh in a sense uh it's very hard to anticipate the future so i'm going to ask you to do time traveling and go back to 1750 at the beginning of the industrial revolution and you'll be pleased to know that many of the same questions you're asking were asked then but we know what happened then so we can kind of run history back and at least you can see what happened in several of these previous revolutions so as i say today is not the first time that people have worried about the future of work you know will technical change create mass unemployment uh will technical change lower wages will all the gains have changed go to the top one percent uh well we can see what happened anyway in the past sorry so but the stock answer to these questions the stock answer of economists is everything's going to be okay it's as a matter of fact new jobs have been created in the last 200 years right the fraction of adults who are working may be at an all-time high now in western europe real wages have gone up quite a lot right so comparing your standard of living to that of people 200 years ago it's a lot better off um so that's the basis for an optimistic view of the future and it was considered completely normal and the expected uh outcome in the post-world war ii period was captured in a very famous economic model of professor solo written in 1957 that got him in the nobel prize it was a model that showed how rising labor productivity translates into rising wages and mass employment the mass well-being but i think there's really a kind of balancing act in thinking about this it's true that in the long run a term economists like to use that's after all the adjustments have taken place and everything's normal again and in the long run economic growth and the prosperity of rich countries are caused by new technology and new capital equipment that's just true however in the short run that is before everything settled down many people suffer from technical change there's a lot of losers as well as gainers and in a sense a key question is how long is the short run you know it's one thing if there's a technology new technologies come in people lose their jobs but after a year or two somehow they've got new jobs they've all been retrained everything's back kind of the way it was maybe that sounds okay it's quite another thing if the people that are displaced by technical change basically remain placed displaced for the rest of their lives and the gainers the winners and the new jobs that are created are their children or their grandchildren i mean that's a very different matter so at least and this is something that's not often not enough considered i think and it's something we want to see how this played out in history so there's a couple of main points i'm going to make one is that i'm actually a pessimist so i don't really subscribe wholeheartedly to the optimistic answer of economists i think there have been long stretches of history when many people have lost out and i think we have to ask whether we're in another one of those now another thing and i've noticed this and i went to a lot of presentations yesterday is i think we have to think about these questions on a global scale and not just a national or sort of european scale there's a lot of a tendency to say well some new technology robots artificial intelligence is going to be introduced and what's its implication going to be and we look at the implication for us but actually we live in a global economy and the fates of people in different parts of the world are linked by trade and migration and so forth and i think this means that both well morally we should be concerned about everybody in the world and not just about ourselves but also analytically we have to be considering what the global ramifications are i mean it may well be that a technological improvement that benefits people in one place is having really bad effects in another place or vice versa right so we want to be sensitive to that and see how the global context affects the implications of technical change so i'm going to do we'll kind of look at things continue to look at things a bit of a grand scale before we get to the industrial revolution and this graph shows you uh estimates of per capita income in different countries and distinguishes a couple of periods here so these are so there's colored lines for the country shown on the graph the one point is that in 1500 if you look at average incomes in big regions of the world like europe asia africa so forth the difference between the highest and the lowest is about 50 right there's not much difference in average incomes at that point so if you flash forward then to 1820 when the industrial revolution's underway um that gap between the richest region and the poorest has grown to about four times if you come up till today the gap between the richest and the poorest regions about 20 times so a lot of the history of the last 500 years has been divergence in the world that some parts of the world have gotten really rich and others have well there's been growth probably everywhere in terms of average income the difference between the rich and the poor is much greater and particularly since the industrial revolution we can see this we have the data are better for instance but what happens there and you can see this on the graph is that by 1800 the top line is that for the uk so it's had the industrial revolution it has the highest average income it's followed by italy uh it's britain overtook italy since 1500 and then there's asian economies below that and much of the story of what's happened since the industrial revolution is that the countries that were richest in 1820 have continued to grow fastest so they really pulled further ahead in the countries at the bottom have not grown so fast so you get this divergence but then more recently there's been convergence and some of the poorer countries have started to catch up japan was the first to do this uh and most recently east asia and china are making huge uh strides in this direction so this is these are general patterns we want to take account of um so why are some countries rich in some countries poor and technical change is uh important part of the answer that technological change is the fundamental cause of economic growth so the kind of question then becomes why have rich countries invented and used highly capital intensive technologies while poor countries continue to use labor-intensive technologies so why do rich countries for instance use highly mechanized power looms when they weave cloth while uh 300 000 ethiopians still weave cloth with hand looms like that all right so in addressing this i want to address this question historically and i want to distinguish three phases of history so the first is going to be the industrial revolution from 1750 roughly to 1830 so this this happened in britain in the uk and we want to understand how it happened and why the second phase the uh western ascent to affluence is sort of 1830 to 1970. this is when the industrial revolution spreads to uh most of the rest of europe and north america and indeed to japan and the third phase is going to be the uh problem written present from 1970 till today so these phases are suggested by western history but they're relevant i think to every it's not just eurocentrism but i think these phases are relevant to all countries because globalization has been come coming continuously and more important in integrating their fates with each other so a common chronology comes to describe the history of the world so phase one the industrial revolution why was the industrial revolution britain british and why did it happen in the 18th century so this is a big historical question right and there's a lot of different aspects to this most of which i'm not going to say anything about there's many people that emphasize political developments the bright property rights systems that emerge culture scientific revolution a vast number of things but i want to focus on more particularly economic incentives that i think played a key role in explaining the timing and location of the industrial revolution and these were that if we look at uh britain uh compared to other countries in the 18th century british wages were remarkably high and energy prices were remarkably cheap and my basic line of argument is that this made it profitable to use technologies that used a lot of capital and energy to save on labor so they raised labor productivity and cause economic growth and because it was profitable to use these technologies in britain that's where it was profitable to invent them i'm not someone that sees inventions as sort of dropping from the sky like rain inventions require people to do a lot of work and so they respond to this work as research and development and work response to economic incentives so here's a graph uh which is one of my favorite graphs it took about 20 years to make this graph and what it does is it shows uh real wages of workers in these cities london amsterdam vienna florence uh delhi in beijing from the uh middle of the 14th century up until the end of the 19th century so this uh this is the result of a big project is an attempt to take wage and price histories which are books that scholars have been writing for 150 years in which they find an institution like a hospital that's been around forever and never threw out any of its financial records and they go through the financial records and write down every transaction the institution was engaged in and then they produce tables that show the price of bread every year from the 14th century to the 19th century the price of meat the price of whatever beer wine and uh so uh in the 1980s i decided that and of course all these numbers are in local weights and measures which are pre-metric uh so they're confusing and they're all in local currency so how do you compare them and i started computerizing these this information putting it in spreadsheets this is one way the technology has increased my productivity i couldn't have done this before the computer but i put these things in uh lotus one two three originally and uh then you could compare them and it was a question of them converting all the weights and measures to metrics and so forth and these institutions also all hired building laborers to fix things or build buildings and so there's information on wage rates uh in these places anyway so then this is standardized so the question is we want to measure the standard of living that some workers that's getting paid in uh you know english shillings or dutch gilders you know how do we compare this over time and between space so there's a standardized budget that i developed to which gives the subsistence income of a family that's the idea for a year so the idea is to compare the annual wage of a building laborer to the cost of keeping a family at very basic subsistence and if they're i look at the ratio so if the wage just equals the subsistence cost of the family that's one and uh if the wage is two that means the worker earns twice what it costs to keep the family at subsistence and of course if it comes out to be a half there's a big problem for the family they don't have enough money to buy the subsistence baskets so there's going to be a crisis so you know it's sort of a perhaps superficial generalization to say that today uh the standard of living across much of europe is pretty much the same everywhere so we could ask when in the past if ever was that last true and the answer is about 1400. so that's the time when those lines are closest together now some of the lines uh that they're rising there at the beginning because there's this important event in history which is the black death in 1348-49 that kills about half a third to a half the population of much of the world certainly of europe and the result is a big labor shortage and a big rise in wages so when you look at these numbers around 1400 these laborers are over earning several times subsistence so the black death was really bad if you died but if you didn't die it was really good at least if you're a wage earner if you're a property earner it goes the other way because there's x too much land around and rents fall so cathedral building stops because ecclesiastical institutions lose all their income so they can't construct any more but if you're a laborer you're in good shape so there's at that time in all these cities in europe where i can measure it the wages are quite high and they're pretty similar and then what you see is you go forward in time in some countries here uh this is london and amsterdam the real wage stays basically flat uh for hundreds of years but if you look everywhere else it goes down and it goes down to about one in the 18th century so what's happening so this is true of central europe southern europe and it's true in other parts of the world like india and china where we can now measure the same thing measuring this stuff has become a kind of global research project involving a lot of people um so there's these two these differential patterns and um basically what's happening is in the in most of the world uh there's not much economic change the population rebounds because incomes are so high in the in 1400 as the population gets bigger less productive land is cultivated the productivity of labor falls and wages drop and you end up in the 18th century with everybody at subsistence and it's not very good whereas in northwestern europe uh the wages remain high so these are parts of the world amsterdam and london are the center of big commercial enter commercial empires uh that gain a lot from globalization from the settlement european penetration of asia the dutch have a lot of asian colonies the british have a lot of american colonies and these empires have come back to this their cause economic growth which maintains wages in this period so the difference between a prosperous northwest europe and the rest of europe is not the result of the industrial revolution it precedes the industrial revolution and indeed it's my explanation for the industrial revolution so it's not just labor relative to the cost of consumer goods that these things change but uh labor relative to the price of capital so this shows uh graphs for some countries where i could calculate this out and you see like for france uh in austria there's basically a flat line and they're the same the line for england is the same around 1600 but it goes up so this means that labor is becoming more and more expensive relative to capital and so this means that the incentives that businesses have to invest in equipment and factories gets greater and greater so you have to think about this from the point of view of a business if they're going to install some big machine that's going to save labor that's a big cost they have this big investment they're going to spend a lot of money so right off at the from the outset that's a cost so there has to be an offsetting gain and the offsetting gain is the savings and labor costs because they save labor so the amount they'll save a certain amount a certain number of hours of labor say but the value of that depends on the wage so the higher the wage the greater the value of the labor saved and the more likely it is that the machine will pay so as wages rise relative to the price of machinery and capital the incentives to mechanize go up so in a certain sense this is also an explanation for why the industrial revolution happens in britain it's because labor there is becoming more and more expensive relative to capital it makes machinery installation more profitable there's the same story of energy so i won't go through all the details of this but uh energy is as london as the commercial economy expands london gets bigger the demand for fuel goes up northeast the coal in the north of england is exploited and shipped down the coast to london on boats and so it turns out that this the lowest pink line there is newcastle that's the cheapest energy in the world that's on the coal fields the industrial revolution happens on the british coal fields and it uses this energy so another factor that contributes to this is the cheap energy you see there so as i was saying this high-wage cheap energy economy was caused by britain's foreign trade boom uh this began with wool cloth exports in the 17th century but it was really consolidated by the creation of an empire the american colonies the caribbean colonies india these are central parts these are huge markets for british handicraft manufacturers the result was a big rise in urbanization from 1500 to 1800 a big expansion of rural manufacturing because much of the textile production took place in people's cottages and tight labor markets meant high wages that's what happened this is a very complicated uh table i won't dwell on for a long time but it shows the transformation of the economic structure of different countries in europe from 1500 to 1800 i suppose the important point is that the english economy was the most transformed you see this in if you look in 1500 at these most of these economies have about 75 percent of their workforce in agriculture which is like an underdeveloped country in the early 20th century it's a little lower in the netherlands and belgium and also italy and spain and near the low agricultural labor forces those countries is balanced by a bigger urban labor force and so urban production was the center of their economies in italy spain and the low countries of the leading manufacturing centers at the late middle ages and what happens by 1800 is the agricultural share goes down everywhere the urban shares goes up and there's also this expansion of what's called rural non-agricultural which is people working in their cottages spinning weaving cloth that's exported to the rest of the world so these transformations go furthest in england than anywhere else and you have a biggest the big increase in the urban share and a big increase in rural manufacturing in only like a third of the workforce in agriculture at the outset of the industrial revolution so there's this big handicraft manufacturing center which is exporting to the empire which is a real basis for the high wage economy that prompts the introduction of machines another difference with the past shows up in population and wages so this this is italy and so the red line at the top is population and the blue line is the real wage and you see from 1300 to 1400 the population of italy drops that's because of the black death and the real wage goes up a little bit because labor's getting scarce and then from 1400 onward the population of italy gets keeps going up and up and up and up and the real wage keeps going down and down and down and down and down so that's the typical pre-industrial pattern is an inverse relationship between population and wages so if you look at england from 1300 to 1600 you see the traditional pattern right the population the red line's lower now the population drops from 1300 to 1400 stays low and then goes up to 1600 and at the same time inversely when population falls wages go up when population goes up wages get out but then after 1600 it's all different there you've got the population going up and the wage going up so the population's the supply of labor so the wage can go up only if the demand for labor is going up faster than the supply so this rise in the demand for labor is the labor market knock on effect of the british empire all this manufacturing that's taking place these exports to the empire are influencing the labor market right anyway uh so the industrial revolution is the creative response to this globalization so um it starts with columbus and vasco de gama their voyages by the late 1600s there's tremendous imports of manufactured goods from asia to europe uh it's important to remember that asia is the big manufacturing center of the world all the good products actually are made in asia in this period and europeans don't make anything that asians want so that trade is all europeans taking loads of silver from the americas and going to china and buying stuff and bringing it back there's no they don't want any of the european stuff but these chinese in indian imports of textiles and pottery porcelain are very popular in europe and so european firms try to emulate them and copy them and but to compete with the asian producers uh british firms have to cut their labor costs so cotton textiles come are imported to britain from uh india and uh they're very as i say they're very popular so british firms try to make them but british costs are very high using hand technology because their wages are much higher than indian wages as we saw so the only thing they can do is save labor by using machines so they started inventing machines in the 18th century and so this is kind of how it works out this is a this is how you did it before by hand uh all around the world if you're making coarse count uh cotton yarn the sort of cotton yarn that would be used to make blue jeans uh or something even coarser than that that's the standard product you do it on a spinning wheel and you see the woman there with a spinning wheel and with her right hand she turns this big wheel and what the wheel does there's a string that goes around the big wheel and then it goes down to a spindle uh on the right side of that picture and the whole function of this she spins the big wheel the string turns and the spindle spins and that's where all the action takes place and in her left hand she has what's called a roving which is sort of coarsely aligned cotton fibers and they're hooked onto the end of the spindle and what she does is three things first she pulls her hand back which thins out the fiber then she moves her hand to the left so it goes past the end of the spindle so each time the spindle turns it twists the fiber and she gets it the right number of twists then she moves her hand back between her body and the spindle and winds up the yarn she's just made on the spindle and then she repeats this and she does this for 12 hours a day and she can make like one pound of cotton yarn like half a kilo in a day then that's her productivity that's the production process i couldn't understand all this actually so i bought a spinning wheel which is in my office and i got a dvd on how to spin and i tried to do this and i must say i'm really bad at this it was terrible so i have tremendous respect for the women that could actually do it and make a uniform product that doesn't have lumps in it and carry this on for 12 hours a day i mean it's it's amazing anyhow the first spinning wheels uh what they do this is a picture on the left is constructed from james hargreaves patent specification and you can see first of all there's still one woman uh now the apparatus is much bigger than the picture you saw before so there's it costs more money a spinning jenny cost more than a wheel so there's more capital so the capital labor ratio has gone up but the technology is really just like a spinning wheel writ large you see that she's got a wheel there that she's turning with her right hand and there's threads that go out and you can see the various spindles standing up on the uh on the right length and they all turn as she turns the big wheel and then she can't hold all these threads with her left hand anymore so uh she's got a kind of wooden contraption that she pulls back that draws them all back together and i think this didn't never worked very well i asked a woman doing this once in a museum what it was like to work with a spinning jenny and she said that jenny was really cantankerous it's like an argumentative unhappy child and i believe it but anyway it increases her output in a day and she uses more capital in a day these are other spinning machines richard arkwright develops roller spinning but it's the same thing there's more capital per worker and more output per day the same thing happens with weaving and this is a traditional hand loom uh this is a arc rights power development of the power loom it takes a long time for power looms to be developed this is really tricky to get a machine to actually weave cotton but that's how it looks so those these technologies come into use they diffuse through the economy and what happens who gains and who loses so this is uh this graph shows you um output per worker in the british economy as a whole and the real wage across average real wage across all workers and i distinguish here between so two-phase well first of all you see output for workers going up all the time right that's economic growth as output poor worker goes up per capita incomes can go up average incomes go up but we've got to divide this graph into two at round 18 in the 1830s and phase one which is the left side shows you what happens for the first two generations of the industrial revolution which is that output per workers going up and the average real wage doesn't change at all right so you got 60 years there where the benefits of technological progress go to capitalists as rising profits and on average the workforce doesn't get anything and stuff changes uh in phase two you see their output per workers going up but the real wage is going up as well so this is what people used to think was normal right economic benefit benefit economic growth benefiting everybody um and it kicks in around the 1830s 1840s in britain so we're going to want to know like why did that change we'll come back to that excuse me so here's another thing that happens uh the last graph showed you the average across all workers average wage but this looks at three different jobs so the left the red line is hand loom weavers so these are the guys that made uh wove cotton with a hand loops there's a blue line a middle line there for agricultural laborers and then there's building laborers so if we look at the first couple of decades of the graph in the 1770s and 80s there's not very much difference in the average earnings of these trades they're all making sort of you know close to twice subsistence but then you see the big red line shooting up above the others so that's the hand loom weavers so what's happening there is that the spinning machinery comes on stream in the 1770s and the 1780s and there's this huge supply of cheap cotton yarn cotton thread but it's got to be turned into cloth so there's a big growth in the demand for cloth and for people to weave the cloth so there's a huge expansion of hand loom weaving and eventually like it gets to be ten percent of the male workforce of britain and at that point they're run out of people to do the job and wages go up so in this first period wages are very high in the social history literature these high wages around 1800 that's known as the golden age of the handling weaver but here's the thing technology kicks in again so as these wages are very high they become a target for inventors to invent machinery to save that expense of labor so that's when the power loom is developed and introduced and so the power looms coming into use in the 1820s and you see the waves of the handloom reavers falling because they're competing against the machines basically as the machines drive down the price of cloth what they can get by weaving cloth by hand keeps going down so you get to like the 1840s or 50s and there's huge inequality in the labor market right the wages of these trades are no longer the same the building laborers who were involved in creating the modern system of capital because they built buildings their average real wage has gone up so they've gained the farm laborers is kind of flat and the hand loom waivers are the big losers their wage has gone down to subsistence and so they either uh you know leave the trade and take up some other trade or something happens right but these are not these are the losers of the industrial revolution the real losers this is the real poverty of the industrial revolution so uh in one of the reactions is uh uh to uh attack machines the luddites is a name for a particular movement of people who burnt factories and destroyed machines this is very common in europe this happens in france too there are people that argue that the industrial revolution doesn't happen in france because there's no protection for factory owners and anybody that tries to build a factory that's built it's burnt down um i think that's extreme but it certainly happens but this happens in england lots of times so usually these uh people are portrayed as irrational because they're opponents of progress but i don't think the people that lose their jobs at this time because of machines like the handling weavers they're not going to get whatever the new jobs are that are created by the industrial revolution maybe their children will don't know but they won't so it's not really irrational for them i think it's very patronizing to say that they're irrational in what they're doing from their point of view they've lost doubt so phase two the western ascent to affluence um so what happens why does britain turn the corner from uh flat real wages to rising real wages basically what happens is all the hand trades have to be destroyed and replaced by factory trades so the new technology has to completely overwhelm the traditional economy so you have this situation where the industrial revolution was caused by this huge handicraft sector that developed in britain and so it's produced mostly by people working in their own homes and merchants take them raw material and collect product they have the equipment so it's the cottage mode of production and the cottage mode of production does really well it sustains big increases of output until the key labor for that activity skilled labor is is all employed and then wages in that level rise and inventors invent machinery and the cell the cottage mode of production basically self-destructs when it hits this contradiction and it's replaced by the factory mode so it's only when the factory mode takes over completely that the average wage starts to go up all right but then it goes up right and also inequality declines in this period there's sort of a big spread of prosperity it becomes more general so this sort of this shows you the graph on the left is what you've already saw about britain it's i've tried to extend the british graph to today but i can't actually get historically comparable wage data so i can't do it but the graph on the right shows american data from the 1890s to uh to today and you see phase two in the americans experience on the left because you've got output per worker in the economy going up and the real wage is kind of going up too at the same pace so this was what normal always used to be and then you see though from 1873 onward there's this big divergence in the u.s the u.s enters phase three that's where output per worker keeps going up and the average real wage is flat all right but we'll get to phase three we're going to talk about phase two so why did the west get rich why did we have all this rising output per worker and basically it's by inventing labor-saving technology this technology's got an interesting property so today there's a world production function is that's the relationship between inputs and outputs that economists talk about this represents the technological options of all the countries in the world so i found this very interesting data this shows um this is for 19 1965 and 1990 the little reddish dots are 1990 and the blue triangles are 1965. there's 57 countries here in both years and you see output per worker on the vertical axis and capital per worker on the horizontal axis and so more capital per worker means you get more output per worker that's modern technology so these so the rich countries are all on the right in the very poor countries with lot much capital low incomes there i'm down on the left by zero right now these points all kind of overlap and they all make a kind of function that you see in economics textbooks you'll be glad to know that that shows this relationship and it flattens out because of diminishing returns so one of the key things though to notice about this is how things changed and the thing is like all the change between the two years consists of these new points these points in the upper right like those all represent countries that are down there in the green circle like in 1965 and there what's happened is the rich countries there in 1965 have all invented new technology and moved up to the right so they have more capital per worker and more output per worker and nothing else in the world has changed right so all the technical change that's taking place is going is rich countries inventing new technology that is more capital per worker and more output per worker it's the same thing as like going from the spinning wheel to the spinning jenny but for the whole economy so since i just discovered this stuff about the spinning jenny when i saw this i thought that's fantastic that's my story the industrial revolution right happening today so i started this mad little research project of trying to extend all the data backwards from 1965 in the last graph back to the industrial revolution like is it the same thing as you go back in the past and it turns out it's always the same story technical change is always something that takes place in the richest countries and they go to they have one technology they invent a new technology with more output per worker more capital per worker and they kind of abandon where they were before and move to the new place and they just keep leapfrogging up like that and it means that nothing ever happens uh in the other country other low old-fashioned technologies once they've left them so we can see this it's kind of like we can play this movie of history now from 1820 onward and see what happens in like the uk the usa and germany so this is the uk in 1820 with low output per worker low capital per worker as the 19th century goes on they keep they invent these new technologies that have raised these numbers and they move up the graph like this so they end up there like in 1965 with you know much more capital per worker and much more output per worker and so they're all kind of rich right now this is the usa so i have to say when i made these numbers and worked all this stuff back i thought the results were only going to be junk i couldn't believe that taking all these numbers from different sources and putting them together would give a sensible pattern but they actually did so you see the usa starts out there in 1820 a little poorer than the uk and you see the uk is still ahead right the us is growing but now the us starts catching up later in the 19th century now they've got more capital per worker and more output per worker they keep pulling ahead like that so they end up with more capital per worker and in 1965 and a higher standard of living because output for workers higher when about germany nope us ends up there here's germany they start out a little poorer than the uk in the usa and they kind of accumulate capital like that now they start to catch up now they make these huge leaps to the right so their income per person is going up but they're getting they're using more and more capital all the time like they got way more capital per per worker than the usa or britain right so you got to think about germany like what germany is famous for all its banks and so investment banks they assemble capital and finance investment so they're doing this huge job of creating all this capital in germany but it doesn't actually make them any more prosperous than anybody else so it makes me wonder about german banks is this really a good model but that's another question anyway so you see how the world evolves like this as these new technologies are invented so how does this relate to the world as a whole so if we superimpose this on all that cross section of countries and like that we saw before from the port of the rich the lines overlap the data points completely so what this means is like the historical paths of development of the rich countries today or the options the technological options for poor countries or like mark said the industrially advanced country presents to the less advanced country a picture of the latter's future right all the poor countries can do is climb up the path the latter that the rich countries have already made so all right so as i say that as rich countries invented new technology they leave the old technology behind and there's no progress so this graph looks at the poorest countries uh the less than five thousand dollars capital per worker from all the different time periods together right and you can see all these numbers it looks like a bad rash and you can't it don't there's no point trying to tell which point is which year although they're color-coded the thing about it is they don't change right the 18-20 points are the same as the 1965 points like all the technological progress in the world since 1820 it doesn't have any impact that you can see here on the efficiency of really poor countries it's all a story about the rich countries all right so poor countries are poor because they use antique technology like where are poor countries successful in the world economy it's making clothing so the clothing uses that the technology is a sewing machine the treadle sewing machine is invented in the 1850s the electric sewing machine in the 1890s right this is ancient technology that's why they're poor so here's the view from the souk so when i go i was in marrakech a couple of years ago and i saw the touristy things but i also looked at the work people were doing and there's a lot of people doing woodwork and this is not just sort of some show and tell for tourists this is actually commercial work so this guy is making little wooden things with his uh a chisel and his toes and it's a little lathe this is a close-up and you can see there's this wood that's held between two metal spindles and you see on the right the red bow so he has this bow that you can see him holding in his right hand and he moves it back and forth and that spins the spindle and then he's got a chisel which he controls with his left foot and he cuts the wood and he he does woodwork okay like that there's no electric motor so i asked myself you know you'd ever see anything like that in europe i mean you never see anything like that now but historically do you the answer is yes so this is a picture from 1283. this is european technology uh moroccan style and you see there's the guy he's got the bow in his right hand the chisel in his left foot and he's doing the woodwork right same very low capital intensive technology but europe's been on this trajectory since the middle ages so you get to the 17th century and people do woodwork uh with pole lathes so there's this pole across the top of that picture a branch of a tree and the string goes down around the woodwork and then down to a treadle on his foot and as he pushes it down it spins the wood around and he can cut it with a chisel but that costs more that's a higher capital labor ratio with higher output per worker so in the 18th century this is an 18th century gentleman's lathe this is really expensive this is very popular in the 18th century amongst the aristocracy to use to do things with lays this is louis the 16th slave which is i have to say a really spiffy nice piece of machinery but uh you know the ruling ideas of the age are they the hobbies of the ruling class um but artisan ways they get more capital intensive too that's a middle treadle lathe from the 1850s and that's a lathe from today a a modern electrical aid so as these technologies have been developed in the west output where workers gone up capital per worker that's why you've got rich it's technology so why don't moroccans use electric lathes so for one thing it's not that they don't know about them because they tell a joke about them so the joke and the souk is that their equipment is black and decker berber style black and decker is an american tool manufacturer so i think it's one of there's many parts to an explanation but i think one part is that it's not worth spending all the money to buy an expensive black and decker lathe when labor's so cheap you know you don't save much labor cost by an expensive lathe so there's a poverty trap means that poor countries the technology that poor countries need to become rich countries is not cost effective and so businesses won't voluntarily adopt it anyway around the world there was this kind of whole spectrum of technologies from with poor countries having low capital intensity and rich countries having rich ones so why did the west go through this process of inventing these ever more capital intensive ever more productive technologies and i think underlying this is a positive feedback system that sustained the growth process so in most western countries there's an expansion of education in the 19th century for various economic and social reasons i think that this expanded educational expanded more highly educated population makes it profitable for inventors to invent machinery that uses that educated labor and so the result is the invention of labor that's as machinery that's more productive but requires educated labor as that machinery is introduced it turn in turn leads to higher late more wages that are even higher and so that then induces the invention of machinery that uses even more educated labor uh and more effectively so there's this positive feedback between education and invention and technological uh change so here's like here it is in pictures so we've got universities here on the left educating people and then in the lower right you've got r d personnel in bell labs who are looked clearly a little crazy who are playing with new television designs and then you've got new high-tech jobs new kinds of jobs that require technical training like the guy on top who's fixing all the electrical equipment that's the spin-off of all this so you get this kind of positive feedback that's happened now greater globalization has actually reinforced all these problems so in the 19th century you've got steam ships uh railroads that really reinforce a global economy and here we can see it uh in one graph you may have thought that globalization is something that happened in the last 20 years with a container ship but this will show that you're wrong so this shows the price of wheat in uh four markets around the world over the 19th century so the top the highest line is london and uh so london is the british air importing all their food a lot of their food over this period so it's a big consumer center so it has high prices it's sucking in wheat from other places the next line below it is the u.s export price so america exports a lot of wheat then below that we have kanpur which is in northern india their their big wheat growing area and then alexandria and egypt and the thing about the graph is on the left early in the 19th century these lines are way far apart like wheat's really expensive in england and really cheap where it's grown by the time you get to 1900 they're all together right the steam ship and the railway have cut freight costs so much that you've got a global market and very little difference between the price of wheat in india and the price of wheat in england that's when globalization happened and so this globalization that happens in the 19th century it has a big impact on factory production and basically what you've got is deindustrialization from casablanca to canton all these north africa the middle east in asia are all big centers of cotton cloth production for instance this is all destroyed by british exports as britain industrializes and a global economy comes into existence so the upshot of this is that uh so one of the reasons that britain can expand and one of the reasons it can have this rising real wages as the technology gets better and better is that it has all these foreign markets that it's creating because it's destroying all their local industries so it's a case where technological progress in britain is benefiting british workers but wrecking the lives of textile workers all across asia the middle east and africa the other thing is that this is a process that creates what came to be called underdeveloped countries so underdeveloped countries were these countries in asia for instance that only produced that were only agricultural they had no manufacturing you had to bring the modern industry that was never their traditional structure they also they had a huge amount of handicraft manufacturing for hundreds thousands of years and this is all ended in the 19th century because of globalization that just tells you there so let's move on quickly to phase three the problem risen present so you see there on the left this is the american data you see on the left how phase two worked with rising output per worker and rising real wages but since the oil crisis in 1973 the average real wages in the u.s has gone up a little bit but not very much at all and uh output for workers gone up a lot so this is the difference is profits and so the incomes of the top one percent are all going up because they're getting all those profits and the same thing happened in the uk we can look at inequality statistics but this shows you what are called genie coefficients that those measure overall inequality so they go from zero to a hundred and a hundred is complete inequality and zero is complete equality so a big number is inequalities more inequality so you see there's already a lot of inequality before the industrial revolution then it goes up the two highest peaks during the industrial revolution then as wages start rising after the middle of the 19th century inequality goes down and it gets really low and then after 1973 it starts going up again it's gone down a little bit in the last few years but there's it's gone up distinctly from the low point so one other thing is that the u.s labor market shows the same kind of explosion of inequality that the lancashire labor market did during the first industrial revolution so the right graph shows you uh two lines the green line is what are called uh production and non-supervisory workers so this line is a very widely reported this time series of wages so these are basically blue collar workers and good goods producing industries and clerical and other supervised workers and service industries food work uh hairdressers and so forth the other the flip side is management in both cases and professional workers employed by businesses so that's the red line so what you see here is like in from 1964 to 1984 the average earnings of management and the workforce are not very different uh but then they difference there's a huge difference that emerges after that and you see that people who have these uh supervisory kind of jobs have rising wages uh whereas the other people have flat wages so the people with the flat wages voted for trump right and uh the liberal elite that they complained about have the red wages and so there really is an economic differential here that underlies the is related to i'm sure this correlation is not perfect but it's related to the politics so how much of the rise in inequality is due to globalization now i'm going to turn into socratic question mode this is a picture of the port of shanghai with all those containers of manufactured goods going off to the west so that can cause inequality by putting uh pressure on the wage level in the workforce of the workforce but how much is due to labor displacing technical change there's a robot assembling a car one of the problems in distinguishing these things is that they're linked and people have known that they were linked since the industrial revolution so here's a quote from 1780 it says the general rule is infallible that when the price of labor comes to be a more advanced in a manufacturing country than in those of its commercial competitors then that expensive nation will lose its commerce and go to decay if it does not counterbalance the high price of labor by the seasonal aid of mechanical inventions right so part of the robotization of manufacturing is driven by the need to compete with save labor costs by competing with lower-cost chinese and foreign labor so will the positive feedback loop of phase two kick in and uh will more education solve all our problems that worked in phase two but the global context is now different in phase two exports of western manufacturers destroyed handicraft manufacturers in asia and africa producing modern underdeveloped countries but now that asia is industrializing its factory products are deindustrializing the west so does this mean that a rise in labor income in the west requires the liquidation of all the production jobs just like the rise of wages in britain and the industrial revolution required the liquidation of all the handicraft jobs that's a question and what about these non-production and supervisory employees do their rising incomes offer grounds for hope many of these require a lot of education but can the salaries of software engineers remain high when they compete with bangalore the center of the huge indian software industry where software software engineers make a lot less than they make in silicon valley well there's a question so a big and ponderable is what drives technological progress is it autonomous advance of science or does it respond to incentives and i've emphasized the latter which may give hope because technological progress is something that responds to the social circumstances in which it takes place we might be able to influence it by policy finally can state policy make things better so do we need more education so people are fitted out for higher paying jobs should we retrain displaced workers uh who lose out from technical change and one of the problems with that is that retraining programs don't work really well dude joe how about more trade unions worker protection is that going to raise wages and improve labor share or does this just shift gains and losses among different workers you know if you've got there's a lot of labor protection and you have a job that's good for you but it makes it harder if you don't have a job so what about populism suppose you know is it a good idea to end asian imports and mass immigration is that going to help labor or what about guaranteed annual incomes maybe we should rethink socialism should we socialize profits or what about thomas piketty's global tax on capital these are all kind of options out there in the world to think about all of which address real developments that i've tried to explain so i leave you with the questions thank you very much i told you i told you it was going to be a fascinating presentation and i must say that babalin is always great and a fantastic speaker i certainly have a handful of questions to ask but i will leave the floor to ask questions first we've got like 10 minutes thank you thank you very much for your very exhaustive uh presentation and for all your explanations but it's a point that is generally neglected by economists namely environmental limits say you talked about actually you wrote a book about uh ways extinction so i believe that you took mainly the perspective of the economic historian rather than the environmentalist but anyway you said that poor countries are poor because they use obsolete technology and not advanced technology if by miracle tomorrow the whole world down to africa and up to bangladesh could use the same technology that the u.s uses what would the environmental consequences be so let's jot down the questions so if there are other questions we prefer to collect no no other questions then you can proceed and answer them that's a very important question uh in a very difficult question um i think that um i haven't talked about uh environmental dimensions of this right uh and it's uh it's the case that uh um the economic growth that's triggered by the uh industrial revolution is leading to large huge numbers of environmental issues right uh and i think i don't know the specific answer to your question but we're all of these countries to become richer using today's technology that the impact on the environment would be extreme right i mean there is some hope though that uh the development paths uh of these countries are not going to lead to as much in the same environmental impacts so like uh as far as say global warming is concerned right burning fossil fuels is a serious uh cause of global warming so the british industrial revolution was all based on coal and so there was huge imminent led the tremendous amounts of greenhouse gases and so on and this carried on through the american industrial revolution german all these economies burned a lot of coal and it sort of looked like you know china was going to go the same way right or up until quite recently like chinese industrialization has involved lots of coal but they are recognizing the environmental problems and trying to address those and even more important than that i think is that there's been huge changes in the price of renewable energy sources so they've dropped tremendously in in price right uh so it used to be that burning fossil fuel fuels was clearly the cheapest way to produce electricity so that the only hope for dealing with the problem was on a regulation prohibiting that forcing subsidizing renewable energy and so forth but now actually um solar power is uh cost competitive so india is installing huge amounts of solar power and not relying on fossil fuels and the chinese are doing the same thing so uh if it actually is the case that you know technology of of renewables develops as it seems to be then uh it may that aspect of the problem may be resolved on its own which is better than like relying on regulation i mean if trump is going to walk away from the paris climate agreement uh regulation's not a kind of very effective right so it's much more effective if it turns out that the technology develops and it's not just that the technology develops spontaneously the technology develops through learning and through state subsidies of the early phases so that you know solar panels and renewable panels get cheaper another thing we might just notice in in this is the sort of irony that uh um if it turns out that the cheap solar power really is cheaper than uh fossil fuels we allow a lot of thanks to chinese communist central planning because china chose 12 industries uh a decade or two ago to become world leaders and and one was solar panels so they subsidized the development and production of solar panels so they've created the cheap solar panel technology that may solve the environmental problem thank you chinese in this case yes all right if there are no more questions i will from the audience of course i would like to ask a quick couple of quick questions we are living in an age of stagnant wages for workers because of globalization because of competition with cheap labor countries and because of technology that has exerted pressure on wages but at the same time we witnessed substantial increase of the remuneration of certain categories of work as they were certainly not a blue collar but particular categories of white collars according to the mechanisms that you illustrated does this mean that we cannot expect much innovation in the future to save on labor costs i mean blue collar costs because of this labor cost is already very low and this is why there's an innovation and this is also why productivity is not has not been increasing over the past few years and can this explain also that most of the investment made on innovation today um ends up on ai because the ai may one day replace the high-wage employees or high-wage workers so that was my first question my second question is just out of curiosity why did you ever decide to write a book about the extinction of ways first question um that's quite interesting i had i may well i hadn't i have to think about this very insightful question uh i think that uh yes it may be that uh as the wages of uh earning salaries of the professionals and the highly skilled uh rise that that does clearly increase the incentive to invent uh technologies that economize on their uh their labor and uh ai uh seems to be one of them so it may be that this sort of direction of technical change in that direction is uh something we should have uh anticipated from the principles i told you but i hadn't got there myself so thank you as the whales well it's um it's slightly a spinoff of uh actually the project to do the wage and price history of the world so i mentioned that uh one of the problems of these price histories that i was computerizing was that the prices from the middle ages and the early modern periods uh wherever you go they're all given in terms of local weights and measures so you have to find some way of standardizing those and figuring out what they are and their metric equivalents are and it turns out that i came across a french book tableau de camaris that was a kind of businessman's manual it went through a lot of additions in the 18th century and it went through all the cities of europe and indeed the world and discussed their monetary systems and their systems of weights and measures and told you how to convert everything into dutch units which was okay because i could convert dutch units to metric units so that was volume one so i was using this for my this project you saw the graph from but there's a volume two so volume two it turns out that the person who did this was a real fan of numbers and he he went through again for all the countries and cities of the world he surveyed and he just he wrote about their societies and economies and wherever there was a number or a table of numbers he put it in the book and i was reading this and reading about the dutch economy and i noticed that he had a a table for the dutch whaling industry which every year from i think the middle of the 17th century 1660 or so up till 1780. he told you the number of whaling ships that went out the number of and they're going to greenland and uh uh to uh yeah and they told you the number of ships that went out the number of whales they killed the barrels of oil they got and the price of oil and i looked at this and i thought wow this is really interesting data this is what fisheries economists use to understand fisheries someday maybe i'll study that and i put it on the shelf and i had a phd student who was trying to get a job and he had done his thesis on comparative canadian and american manufacturing productivity they got a job interview very late in the year with a canadian university in the maritimes and when they told them to come they said oh by the way this job is half in economics and half an aquatic management and it would be really good if you could talk about aquatic management we didn't have a thesis about aquatic management so he didn't know what to do and he he done natural resource economics so i he came to my office and told me this and i said ian i've got just the thing i pulled this off and i said go and present work this up in a presentation and uh so he did that uh and he he had his interview and they told him at the interview that uh this was so impressive that they couldn't understand why he didn't do his thesis on it so they wouldn't hire them so we decided after that that we'd developed do the project ourselves so we wrote several papers about it the next year he went to get a job and he got a really good job at queen's university in ontario and it was half of economics and half an environmental science because we did the whale's project fantastic i'd like to thank bob allen i'd like to thank all of you but have you ever heard of a professor of economics who pert has purchased a 17 or 18th century loom to try and understand how it worked thank you very much thank you very much you