WHAT HAPPENED
TO
ENGLAND?

Logic demands that if one reasoning is correct then the opposite argument must be wrong. An illustration of this is two economic models, the Malthusian Trap and Walt Whitman Rostow's five stages of economic development. While Malthus believed that the human race was doomed to starvation, Rostow believed just the exact opposite, that the future would bring about an age of mass consumption.' One of them must be wrong, after all how could both be correct when their results are so different? But, when one considers the wide disparity between countries in the real world, then the possibility that both economists might be correct is no longer ludicrous. So the question we must ask is what cause these contrasts. But, it appears that there's no simple answer that can answer this question. There is no one factor that can dictates how an economy grows. Instead there is an abundance of factors which shaped and influenced the path of economic growth. This profusion of factors is the key in answering our question. The reason that Malthus and Rostow are both correct is that they both chose to concentrate on some of the factors of economic growth. By overlooking other influences, they also omitted the possibilities of other fates of an economy.

Since England is the first county to industrialize and many countries have based their strategies for expansion upon her actions, her history of growth is essential in any study of economic development. As a result, there have been many questions raised about the British economy. One of significance is why it failed to grow as vigorously as others after it's initial spurt. Despite the fact that she was the first to industrialize, or perhaps because she was the first to industrialize, British economic growth stagnated by 19th century and she fell behind new economic powerhouses such as Germany and the United States. But, perhaps stagnation is too strong a word. England is not the most industrial of countries, but most of her citizens are living significantly above subsistence level. While Malthus' and Rostow's predictions still might become reality in the distant future, it seems safe to pronounce that their models have failed to predict what had happened to England. Her continuing existence disproves Malthus' prophesy of doom, and yet poverty exists in enough quantity that the "Age of Mass Consumption" seems too optimistic.

Since England is still here with us today, it seems relatively safe to say that it avoided the Malthusian trap. Although England did experience the restrictions Malthus based his theory upon, it appears that the British economy managed to maneuver around the pitfall of declining natural resources. This goes against Malthus's model. He believed that increased population growth coupled with fixed resources such as land must result in the collapse of the economy. His argument relied on one simple assumption, that agrarian productivity simply cannot keep pace with the growth of the population.

In his model population growth is an exponential function. The more people there are, the faster the population will grow. Unknown to him, population growth was not to speed up as he thought but slow down. With advances in medical knowledge and changes in the life style, people lived longer. But, as mortality rates fell, so did birth rates. Decreasing infant mortality and a move of the population from rural to urban sectors caused the populace to have less children. This meant that while population growth would increase when mortality fell, but would decline when birth rates decreased so time later. Malthus died in 1834, a time when mortality was still falling but before the declines in birth rates and the subsequent population growth. His argument is sound, yet without taking into consideration the possibilities of outside factors which might affect the model, it ultimately failed to predict what happened to England.

Malthus' overestimation of population growth was less of an oversight than him dying before certain effects of industrialization was realized. However there was one thing which he did overlook, technology. He did not foresee the impacts that science would have on the industrializing nations. A lower population growth does not mean that the population will stop growing, but it does mean that the economy has more time to find a way out of the Malthusian trap. The most important example of this is that the slowdown in population growth allowed improving farming methods to meet the demand of the increasing population. New technology such as fertilization and pesticides made old land more productive. The new methods also allowed new farmland, which according to Malthus and the rule of diminishing marginal returns must be less productive, to produce an equitable level of output. The new technology transformed farming so much so that the farmers were able to feed not only themselves, but also an industrial sector which was growing many times faster.i This is happening despite the fact that the British economy is constrained by its fixed natural resources.

Rostow's stages is more troublesome to analyze. Even the failure of his model in the context of England is not immediately apparent. With the consumption level of England, it is only when you consider those living beneath the poverty level and compare the British economy with others such as the US, that a failure of sort is evident. As all countries have some populace designated as poor the more important problem is her second-rate economy despite the fact that she was first and far ahead at the starting point. The turning point in her development, is then the interval of time that interest us the most. For this reduction in her growth is what prevented England from attaining a state of mass consumption some would argue the US have achieved.

The question of why England experienced the first industrial revolution must be answered before any conclusions can be reached for why years later the British economic growth experienced a fall. According to the Solow Model of economic growth,1 output is a simple function of capital, knowledge and labor. We have already discussed the increase in growth of labor. Yet, that increase in growth will not fully manifest itself until about the late 1800's,2 years after the industrial revolution have started in England. Nor, was there a spectacular drop in population that would explain the later drop in industrial growth. Therefore, we can safely rule out changes in the population and labor as the answers for our question.

A probable cause of the slowdown is the export of capital. England was the leader in foreign investment. As much as half of British capital holdings were overseas.3 This meant that British capital stock fell well below that of other industrial countries.ii The slow growth of capital investment makes a convincing explanation for the slowdown of output. A historian would argue that capital didn't play a large role in the first industrial revolution, so why would it have a large effect now? The answer to that is the structure of the economy and the products produced by each sector. The invention of the cotton spinning machine and the steam engine had a significant effect on the cotton textile industry. Yet, compare that to the effects of the personal computer had on modern industries. Without modern technology such as the computer and the telephone many of the industrial and service sectors would be paralyzed. Not merely less effective, they would be unable to carry out their most basic functions. Every sector today uses more capital than at the beginning of the industrial revolution. And, our hunger for power requires tremendous investment in the building of power plants. While a farmer might get along without a plow, can Wall Street function without technology?

This leaves us with knowledge, what most would argue caused the first industrial revolution. During the first industrial revolution England was the leader in employing technological advances such as the cotton gin and the steam engine in her industry. Yet, this was not happening during the so called second industrial revolution. For instance, in 1900 England was suppling 85% of the world's export of coal.4 But, this fell to half thirteen years later. Productivity dropped from 297.8 tons per worker per year to 246.4 tons per worker per year. Certainly, coal mining and coal outputs cannot be expected to follow a simple function. After all coal deposits are being depleted and the labor force almost tripled in size, decreasing marginal products of labor. But, those aren't the only cause of the decline. While England was the technical pioneer earlier in the century, she has failed to adopt new technology such as the mechanical cutting of coal.

Failure to adopt and change existed throughout the British economy. Among them, British shipbuilders were not building new shipyards, the tin-making industry failed to adopt new methods available to them and there was lack of qualified chemists in the drugs and pharmaceutical field. Some are easy to explain. When the shipbuilding industry began to feel the need to expand, they found themselves hemmed in by the residences of their workers. Unwilling to pay the expenses of building an entirely new shipyard, they remained with their older and less efficient yards. In the tin industry, it was a simple reluctance to change. This is surprising. After all, wasn't it the British entrepreneurs who started the industrial revolution? Yet, now many British capitalists face change with hostility. It is understandable. After all, they have sunk millions into their existing capital. Why risk paying more for technology which haven't proved themselves, especially since they're rich already.

But, in the case of the pharmaceutical sector, the problem is more serious. Technological knowledge, for the most part, is easily obtained from foreign sources and implemented. Obtaining and maintain a significant amount of highly trained foreign labor, however is much more difficult or at least exceedingly expensive. We return again to the advances made in technology. While it does not take years of training run a cotton textile machinery, many of the new technologies did require years of education and training. A poorly trained England could not hope to keep up with countries like Germany which were churning out well trained scientists and labor force.

The puzzle is not the literacy of the English workers. Many of them were literate, 93% of them to be exact.5 But, despite their literacy, they were poorly trained in science. An enquiry during 1896 found that only one in nine public schools surveyed even attempted to introduce science, and in that case it played a minor role in the instructions. Science was considered a gentlemanly occupation and not for profit. There was no motive to teach the children of the masses the hobby of the rich and mannered. Of course, considering that new technology was not being employed, the lack of knowledge needed to use that technology is not terribly harmful. Yet, as various sectors eventually began to adopt the new technology from overseas, this lack of expertise in the sciences prevented the new capital from reaching it's full productivity, further decreasing the desire to overhaul the factories.

Population, capital and technology are just three of the factors involved in the growth of the economy. A major player' in the economic game is the government. Did the British government help the slowdown of its economy? It certainly did help push the first industrial revolution along, and little changed after that. While the British government may have done nothing which encouraged substantial economic growth, at least it did nothing to retard it. With the exceptions of Germany and a few others, that is more than can be said of most continental countries. The British government's commitment to free trade did allow her industries access to cheap important. Her colonization also opened vast markets for her export goods. But, on the other hand, the huge sums of money needed to finance her empire surely meant taxation which might have slowed growth at home. This also brings back the question of the export of capital. Many investments went to colonial areas such as Indian. The colonization of these areas certainly did encourage potentially harmful foreign investment.

Malthus concentrated on population, Rostow on capital and technology. Neither's model involved all three. It is certain that their models fail because they are simply too vague and general. But, that is a fault of all economic models. You wouldn't want an economic model as detailed as the real world any more you want a map to be. And, just like a map it is the generalness that makes economic models useful. Certainly there is nothing wrong with either model. There are counties which seem to fit both models. It merely depends on other influences they have not touched upon. Are Malthus and Rostow both right? Are they both wrong? The question to both is yes.


APPENDIX
  1. Y = F(K,AL) where Y = output, K = capital, A = knowledge, L = labor
  2. B.R. Mitchell, European historical statistics 1750-1975 (London 1981)
  3. Sidney Pollard, Britain's Prime and Britain's Decline (Great Britain 1989)
  4. Pollard (1898)
  5. Pollard (1898)


Table 1
Employment Structure in UK (% of total employment)
Agriculture Industry Services
1700 56 22 22
1820 40 32 28
1890 16 28 40
1989 2 29 69
Angus Maddison, Dynamic Forces in Capitalist Development


Table 2
Gross Fixed Capital Stock Per Person Employed ($ at 1985 US relative prices)
France n.a. (9,600) 14,800 43,309 80,604
Germany (9,611) (13,483) 16,291 55,421 89,154
Japan 1,454 2,264 6,609 33,101 78,681
Netherlands n.a. n.a. 20,181 59,459 80,897
UK 7,634 9,780 13,923 39,100 58,139
USA 16,402 35,485 48,118 70,677 85,023
Maddison


© Copyright 1997 by David Xu.