3: The Anglo-American World: 1800-2000

In the third week of the course, Professor Sachs talks about the fifth wave of globalization: the Industrial Revolution or the Anglo-American Revolution. We learn that global transformation during this period happened faster, deeper and more extensively than ever before.

Professor Sachs highlights the development of the steam engine in 1776 as the invention that sparked economic growth and supported population growth during the following 200 years and more. Professor Sachs lists the factors that contributed to Britain becoming the first industrial society. From Britain, industrialization spread to other parts of the world; in this week we look at the channels by which this occurred and at the pathways by which the industrialization process was blocked. Professor Sachs presents the process by which the European imperial period ended and how Britain went from being the greatest imperial power to being the United Kingdom again. World War I and World War II destabilized Europe and imperialism.

The US came to be the largest economy of the world after World War II and a US- led globalization followed. This period was characterized by the spread of decolonization, the diffusion of industrialization to more countries, the acceleration of global output growth. A period of convergence in which the information revolution transformed the whole world economy.

3.1 James Watt Changes the World

What are Kondratiev waves and how are they related to the term “endogenous economic growth”?

Why, according to what Professor Sachs explains, was the existence of patent rights in Britain key to Britain becoming the first industrial economy?

In this module, we’re going to talk about the fifth wave of globalization, the one that created the world we live in, the Industrial Age. This is a period of transformation. Faster, deeper, more extensive than ever before in history. Everything has changed about how we live. Two hundred years ago almost everybody lived in rural areas. Most people were farmers. Almost everybody was poor. Roughly speaking, we can take as our starting point the beginning of the 19th Century.

But I think accurately we might take another date as our real starting point. One could argue that 1776 is the appropriate date. Now if you’re an American, you’d say oh yes, the war of independence, Declaration of Independence and that’s not what I have in mind. If you’re an economist you say, I know what you mean, that’s The Wealth of Nations, the year that Adam Smith’s great book was published.

Well that, that is a good candidate, but that’s actually not what I have in mind. If you’re an historian you’d say, I know what you have in mind, that’s when Gibbon published The Decline and Fall of the Roman Empire.

That’s actually not what I have in mind either. If you are an engineer or an economic historian, you’ll know that this was the year that Boulton and Watt brought James Watt’s steam engine to the marketplace. Around 1776, James Watt developed his steam engine.

And I will argue that this was really the great invention of the Industrial Age, the one that set off 200 years plus now of rapid economic growth, unprecedented in human history and in many ways made the fifth wave of globalization what it is.

When Isaac Newton was asked how he could accomplish his brilliant mind-boggling insight into nature, he explained, if I see farther, it’s because I stand on the shoulder of giants. And one could say that Watt, who is a giant of technological innovation, also stood on the shoulder of others. And one in particular is Thomas Newcomen.

One could say, really invented the steam engine. Not the one, that really made possible the Industrial Revolution, but certainly the one that made possible James Watt’s steam engine less than a century later. Thomas Newcomen was an inventor and a proto-engineer before that term was used, who observed in the early years of the 18th Century, the problem of coal mining shafts filling with water. And so coal mines needing to be pumped of the water so that they could continue to be mined.

And he put his very creative mind to work to create an engine that could pump the water from coal mines. What were coal mines and coal useful for, for Britain? Coal essentially was used for heating at the time. It was burned in the cold climate in the winter months in England. And it was beginning to be used in metallurgy. But ironically, coal became the input for an engine, first to pump water out of coal mines, and then later for everything.

For transportation in locomotives, for industrial development and that’s what made possible the full Industrial Revolution. But I’m getting ahead of the story. Newcomen developed his engine. It was deployed in coal mines.

It wasn’t very efficient. It used a lot of energy. It was not used for other applications. And James Watt, at the university in Glasgow, put his mind to work thinking about how it might possible to make Newcomen’s steam engine more efficient.

Quite brilliantly, Watt made two great innovations to Newcomen’s engine. One was the nature of the translation of steam energy into motion. Watt introduced a rotary motion into a steam engine rather than an alternating beam that Newcomen had used. So a pump that went up and down. Watt introduced rotary, a motion which was fantastic for turning the machinery in factories.

But Watt did something even more important for the history of the world economy and that was he noticed a way to make Newcomen’s steam engine far more energy efficient. Technically, he took the cylinder in which the water was heated to make steam, which pushed the piston, which moved Newcomen’s pump, and he separated a condenser away from the cylinder, so he added what he called a condenser and technically speaking, rather than heating and cooling the cylinder that contained a piston that moves the machinery, he created a way to keep the cylinder hot whereas the condenser was then used to create the vacuum pressure which moved the piston.

And all of the long and the short of it is that Watt made a major advance in energy efficiency, and therefore in the economic returns and the ability commercially to deploy steam power. And around 1776, voila, you’re looking at the Watt steam engine that changed the course of history.

Why am I putting so much emphasis on one invention?

It is absolutely true that the Industrial Revolution, which gave rise to the Industrial Age has many, many pivotal inventions. During the same century between Newcomen and Watt were great developments in metallurgy and how to make steel.

Great advances in the machinery in the textile industry, in spinning yarn and in mechanical weaving, creating machinery for looms and many, many other advances. Until the steam engine could be used to mobilize coal for motion, where did our energy for industry and for transport come from?

For transport, if you were lucky, you rode on a horse or in a carriage pulled by animals. The steam engine broke free of the constraint of animal or human power for transport. It made possible locomotion. It made possible the steam locomotive. It made possible the ocean steamer. It made possible automobiles, even though they subsequently were edge out by the internal combustion engine which was to come about a century after Watt’s invention.

Watt made possible something else. All the clever machinery in the early factories, many of which were turned by waterwheels, or by windmills for grinding, mobilizing energy in the form of wind or falling water somehow now could be mobilized anywhere, even if there wasn’t a river nearby or there wasn’t sufficient wind power nearby by having a steam engine.

And that steam engine could run as long as there was a supply of coal available. Now we had an economical, efficient, round-the-clock source of vast, vast energy potential. And this is what made possible the Industrial Age.

The historians, such as the great British historian Wrigley, says that it’s breaking free of the organic economy to the mineral or fossil fuel-based economy which made industrialization possible. One can see it in the numbers. What we are looking at here is a graph that shows the estimates by macro-historian, Angus Maddison, of the output per person on average worldwide from the beginning of the common era, 1 A.D. up until today, and what you see in the graph is essentially output per person hardly changed century after century after century after century for the 1800 years depicted here.

And then the output per capita almost rises vertically when looked at at this scale. In other words, we start becoming rich. Humanity starts escaping from poverty. And what is the reason why the output per capita starts to soar?

That is the ability to mobilize vast energy to be used in industrial processes and for transportation, and then for an increasing number of purposes throughout the economy over the course of the succeeding two centuries.

Well, it’s not just the output per person that rose, but you have the same kind of inflection, where the world population which was very, very gradually increasing, suddenly soaring after the middle of the 18th Century, but especially in the 19th Century.

Why did population soar?

One overwhelming reason and that is that humanity in the aggregate could produce vastly more food. And the main reason for that is that there were not only advances in agricultural know-how, but there could be mechanization and there could be long-distance trade in agricultural inputs, as well as the shipment of food itself.

Suddenly, you could grow food in one place and feed populations in another because of ocean steamers or because of locomotion. So the rise of output per capita and the rise of global population are part and parcel of the Industrial Revolution.

Historians talk about long technology waves during this 200-year period. A great economic historian named Kondratieff gave the name to these waves of technological change every forty or fifty years.

They became known as Kondratiev waves. They’re depicted here as several different waves of technological change. Sometimes they’re dated as the first Industrial Revolution, the next Industrial Revolution and so forth.

In wave after wave of technological change that we now call endogenous economic growth, which expands the market which leads to inventors creating yet new technologies and you have a self-feeding, positive feedback process which has now lasted for 200 years.

Up until the Industrial Revolution, we had had a long period where technological change, though evident, came at the space of centuries, whereas now, breakthrough technology started coming year by year, feeding on each other and producing this remarkable breakthrough in economic growth. What made these inventions possible?

Britain certainly was not the only home of scientists. Italy has to have pride of place I would say with Leonardo and with Galileo as really prime movers of the scientific revolution. One would cite Poland and Copernicus as providing one of the greatest insights, the heliocentric universe in the early years of the 16th Century.

But Britain offered a combination of conditions that, one could say, combined with the wonderful accident of Watt’s genius, made possible this confluence that enabled the steam engine and Watt’s insights and the cascade of technologies really to make the first industrial society in England, Britain more generally, in the first years of the 19th Century.

So why? Well intellectual milieu is certainly part of it. It was in Britain that Francis Bacon, way back in the beginning of the 17th Century had the incredible piercing insight to say, we can harness natural forces for human betterment. The idea that natural law could be identified, turned into technology through experimentation, and then used for human improvement was itself an idea of progress that needed an invention.

And I think it’s notable that Francis Bacon is perhaps the clearest and first progenitor of that idea of science-based, evidence-based experimentalist based human progress. Isaac Newton by himself is a, not only an identifier of natural law, but a force of nature, because the breakthroughs that Isaac Newton perceived through a kind of genius that is once in many, many centuries, has to be regarded as part of the story.

What Newton showed, following Galileo, was that mathematics was the language of natural law and not only that, but he developed the language of the calculus and the Newtonian laws of physics to open up an explanation not only of the cosmos, but of dynamics on earth as well. Of course, it was the fact of universities and the relative openness of society that made it possible for there to be a University of Glasgow, to be developing scientific instruments in the Newtonian and Baconian tradition and to hire a great craftsman like James Watt, who had the instruments that he needed, the freedom of action, the intellectual environment to work on his great idea of putting that condenser and rotary motion into Newcomen’s steam engine and give him an environment in which that could be done.

But that wasn’t all. Watt wanted to develop his technology not as a concept but as a business. He lived in an environment where market institutions were developed and where a great invention of the market economy, the ownership of intellectual property in the form of a patent right existed so that he knew and his future business partner, Boulton knew, if we invest in your steam engine, we will get rich.

In other words, we will own the intellectual property so that another engineer can’t come along, take it apart, put it back together and say, I’m going to make the same thing. So does that explain the full story?

Not quite, because there had to be coal. It’s not that they could have taken anything from the countryside, coal was the brilliant breakthrough because coal is very concentrated energy. It is essentially carbon with some impurities. And carbon burns. It emits carbon dioxide into the atmosphere which will be part of our story a little bit later.

But when it oxidizes, it releases a vast amount of energy which is why the steam engine does what it does. And so the idea of burning coal for energy is a wonderful idea and Britain was burning coal for a long time, but it had to have coal to be in a position to exploit this vast reservoir of high quality free energy that was waiting to be developed once the insight into how it could be effectively utilized was at hand.

Not every country had coal. Not every country had coal near the surface that was mineable at an affordable price, but was close to population centers so that you could actually transport the coal through canals or over flat land, not in some high mountains with phenomenally high transport costs.

So Britain geographically was well placed. Britain had another advantage. All that history of the imperial competition from 1500 up to Newcomen and Watt had led Britain to become the great naval power of Europe, indeed of the world. With that great navy it was possible to have global supply chains.

It was possible to bring cotton from the Americas, cotton from Asia and to bring it reliably into the new steam powered factories of England. All of those factors played their role. The scientific revolution, the market economy, the intellectual property, the existence of excellent universities in which the experimental work could be done, the availability of low-cost coal, indeed the use of coal over many centuries and the Royal Navy which made it possible to envision a global supply chain, reliable enough to invest heavily in British based factories and to bring the primary commodities from around the world.

Took a lot of things to make this happen. It’s probably not surprising that the Industrial Revolution happened just once and it didn’t arise suddenly out of nothing, it was the process of long history and many different components of this integral whole finally coming together to produce a breakthrough, a breakthrough in world economy, a breakthrough out of poverty, a breakthrough into modern economic growth, the likes of which the world had never seen before.