Lesson 1 [Industrial revolution and demographic transition] PDF

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· Contents
- Industrial revolution and demographic transition
- The diffusion of industrialisation. Regional and National models
- The new industrial powers outside Europe: USA and Japan...

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LESSON transition]

I

[Industrial

revolution

and

demographic

· Contents - Industrial revolution and demographic transition - The diffusion of industrialisation. Regional and National models - The new industrial powers outside Europe: USA and Japan

· Industrial revolution and demographic transition Y → Income: Remunerations that production factors receive P → Production: f (K,L)

K = Capital,

L = labor

Productions = Income [= Aggregated Demand] (microeconomics concept)

Capital (K): Physical goods; tools, animals… Labor (L): Human work

+World econ economic omic growth 1500-1820: There was an annual growth rate of 0.05%, the demographic and production growth both increased proportionally and the GDP didn’t, this was mainly because people life’s didn’t improve. The preindustrial economic is also known as an organic economy, since the production of any good is based on organic raw materials, organic energetic sources and transport systems. Before using coal as a source of energy, they used human/animal movement energy. Also, before the industrial revolution the economy was based in agriculture and artisan workshops. There weren’t many purchases in the marketplace, because the production was self-sufficiently, that is why there was no industrialization. The manufacture production was concentrated in artisan workshops regulated by the guilds. →Guilds, were an association of artisans, that regulated the productive process, and controlled the workshops production and activity. Guilds were used to: -

Organize labor and capital

-

Regulate activities

-

Quality control

-

Restrict entry to labor market, since they provided training.

-

Provide social services

They had a low degree of specialization, acted as a monopoly and so restricted both production and demand by maintaining high prices and discouraging innovation and new technologies. Guild’s activity was carried out mostly in cities where each guild would control the production of a specific good. At the end of the 18 th century, guilds were threatened by the absolutist states who brought them under its authority and ended with their independence. The development of the industry of markets that were outside from the control of guilds also affected guilds, they sought out for cheap country labor force, free of limitation as to a number, wages or conditions what ended up making guilds jobs disappear. By moving the manufacturing to the countryside, it became cheaper, both easy and intensive production processes were moved to the country side. This made a clear separation of roles and division of labor. The UK industry evolution allowed them to specialize on textile, this caused prices to drop and increased textile production. Still, the growth was limited and agriculture wasn’t increasing because of Land Ownership by Nobility, Churches and Monarchy, also peasants had to pay feudal rents and they didn’t have enough money to improve the production and, a decreasing of marginal result (The labour, resources and land increased, but we still obtained less). Why agriculture was non-productive -> Self-sufficiency agriculture with barely any technological change and high pressure because of feudal obligation, labor wasn´t divided so no specialization occurred, no market existed and productivity didn´t increase. Manufacturing → artisanal, wasn´t capital intensive (without machinery) but labor intensive (everything handmade by one person, there wasn’t

specialization of labour). Employment was limited with capital and materials which were limited by raw materials such as wood, stone, brick and plant fiber. Metal was barely used. Main innovation was the appearance of textile production as an attempt to contain cost. This was considered protoindustrialization. ·PROTOINDUSTRIALIZATION PROTOINDUSTRIALIZATION PROTOINDUSTRIALIZATION: It refers to a form of manufacturing production. The idea is to escape from the regulation of the guilt by producing outside of them, so that the it can be produced and sold cheaper. 1820-2000: It was not until the industrial revolution that there was an exponential economic growth. Diminishing returns: A theory that predicts that after some optimal level of capacity is reached, by increasing the capital or labour, adding an additional factor of production will result in smaller increases in output. E.g. if a factory employs workers to manufacture its products, at some point, the company will operate at an optimal level; with all other

production

factors

constant,

adding additional workers beyond this optimal level will result in less efficient operations. Th The e Malthusian theory of popul population: ation: The idea by the British economist Thomas Malthus, proposes that population growth is potentially exponential while the growth of resources, such as food and supplies, is linear. Malthusian theory is a theory of demographic change. Specifically, it postulates that co cont nt ntinu inu inued ed po popul pul pulat at ation ion gr grow ow owth th w il illl even ventua tua tually lly outs utstr tr trip ip t he li limit mit mited ed re resou sou source rce rcess of our wo worl rl rld d t hat ar are e

l imi imited ted ted.. Economic growth and urbanization meant the appearance of poor people and people living in misery, since there are limited amounts of food and other resources. Some will get more than others. Once we started using all our earth resources death rates will start to rise. Malthus said economic problems were mainly caused there was either too much or too little population. Malthus believed that humanity is condemned to misery, this goes back to the stationary stage and diminishing returns since we hit the growth limit. More people → More labor → GDP decrease (production/population) → Productivity decreases (Workers increase more than productivity). There are 2 mechanisms to restrict population growth: -

Preventive checks: Reduction of birth rates. (UK vs Asia, superior races…)

-

Positive checks: Increase in mortality rates. (Due to scarcity, poverty, wars…)

Malthus said that rich people were the ones that could restrict birth rates yet most people were poor so society was condemned to misery. Giving the poor money would make them have more kids so it was useless helping them. Poor people can´t control themselves and the growth of population. This created a pessimistic view for all economies.

+ Agraria Agrarian n revolution Before the industrial revolution in some countries (such as in the Netherlands and England), there was an agrarian revolution, where the agriculture was based on natural cycle and self-sufficiency. Characteristics: -

Planning & management of activities occurred

-

Development of management and accounting systems.

-

Intensification of labor and minimization of inefficiencies.

-

Crop rotation (Norfolk system) and elimination of fallow

(barbecho).

This

was used to be more efficient

-

Seed and animal section.

-

Process of enclosures. (private property)

Transformations: -

Technological: specialization, investment, acclimatization of American plants.

-

Structural: related with property and exploitation of land. Process of concentration of property and replacement of common rights by private property rights. The process of privatization of land, and a clarification of the owners of the land, since during the feudal system, lords and churches had a privilege on the land but they weren’t the owners. During the agrarian revolution it was defined the proper property ty of tthe he land.

All of this allowed the agriculture productivity to grow and start producing for the market instead for themselves only.

+Industrial re revolution volution It’s the process of transition from an organic economic to an industrial. It was experienced in England during the 1760-1830 in the framework of the new factory system, with new organization of the process of production.

· Why it started in England? There is not real causes of why it started, no determinants can explain the industrial revolution alone, but they can all help us understand why it took place in England. o Agrarian revolution revolution: with an increase in cultivated land, productivity, with this they realized that with less labor we could still produce more, there was also released workforce, and those moved to a more industrial parts of the country. o Existence of rural proletari proletariats ats ats, process of enclosures and abolition of common rights. They were jobless, and had to leave to the city and to find industrial job. o Existence of markets markets: Internal markets (medium classes, working class, intensification of urbanization, protection of internal market: prohibition of selling patterned cotton textiles from India in 1701, taxes to outside products...); Colonial dominium (Navigation acts and conflicts with the Netherlands). o

Availability of energy resources, England had a cheap high quality of coal coal, compared to other regions the coal in England was the cheapest, that was represented with an energetic revolution. This allowed them to mechanize the process of production.

o Availability of raw materials materials, such as cotton, that was produced in many of the British colonies, in which they crop most of their raw materials

o The ins instit tit titutional utional and cul cultural tural framework which favored technological innovation, business initiative and social mobility was also a determinant.

·Technological Rev Revolutions olutions An invention turns significant in economic terms if it is applied as an innovation into a productive process. Technological convergence convergence, means that different companies from different sectors use the same technology, a general adoption of the technology. A chain of innovations leads to the process of technological convergence. The steam machine was the main driving for force ce of the Industrial Revolution Revolution, it became a mass use invention. Factories were characterised by centralized propulsion through steam machines and power transmission to other machines. High-pressure machines increased power and performance (The industrial revolution was grounded on an energy transition, lying in the use of heat stemming from mineral coal combustion. Economic growth it is calculated with GDP per capita capita, and to increase the GDP per capita, you have to produce more per capita, and to do so you have to increase Productivity (it is really important productivity to increase the economic growth).

Productivity= (Output/L)

If you produce more output for the same amount of labour, then productivity increases and so does economic growth. Technological change, has a huge implication into productivity. The technological cluster has a life-cycle, is not forever. o First stage or try-and-err try-and-error or (when the technology appears but it isn’t clear its use), at first the steam machine was used for mining.

o Mass diffusion stage tage. When the technology becomes more affordable and easier to use, there are more and more companies in the sector. Also, it’s utility it is known. In this period the productivity grows. o Exhaustion stage stage, when the technology is already spread, it is not possible to increase the productivity, it’s hard to keep growing, since everyone already has the technology, the only way to is to improve the technology. The factor system, was a new way to organize process of production during manufacturing. It changed the relation with workers and capital, since before they were paid for their productivity, so wages were set per unit. Meanwhile when working in factories they couldn’t choose how many hours wanted to work, there were minimum hours set to work. o There was a separation between production and consumption units. o significant number of workers under the same roof o a concentration of the production process o specialization of labour o Mechanization of production, means replacing labour with capital, using less labour to incorporate more capital or energy. It requires a machinery. o centralized mechanic propulsion from mineral energy sources o new labour relations framework based on wage-earning labour and discipline.

·From the putting out system to the factory ssystem ystem The putting out system was able to produce for cheap, but into a certain extent, since at a specific moment the putting out system can produce at the same basis. Boom of the proto-industry, increase in the demand for industrial products: o Internal demand o Increases in population and higher purchasing power of middle classes o Increases in urbanization: more dependence on the market o Protection of the domestic market o External demand o Colonial dominium Mechanism to increase demand in the framework of the putting-out system o Extensive way o Extension of home production nets o Inconvenient: higher transport and vigilance costs o Intensive o Increases in labour intensity (more hours) o Inconvenient: increases in the wage per item, your wage has to cover your production The problem of the control of labour got worse · Dilemma: to continue with disperse industry or to change to the factory system

· The decision depended on the entrepreneur’s ability to control labour and productivity (depending on technology) PHOTO ADVANTAGES AND DISADVANTAGES

ADVANTAGES

Dispersed industry

Concentrated industry

Putting-out system

Factory system

·Lower investment in · Higher control of labour fixed capital.

(discipline).

· Lower risk and more · Higher control of quality. versatility in front of ·Lower

Lower

wages

(per · More specialization and mechanization opportunities.

item) DISADVANTAGES ·

Lower

control

of · Higher wages (time based)

labour. ·

and

transaction costs.

demand reductions. ·

transport

Higher

· Higher investment in fixed transport, capital.

vigilance,

and · More risk.

transaction costs. · Supply inflexibility in front of demand increases Economic growth during the first industrial revolution o During the British Industrial Revolution, GDP increase was moderate and irregular. o The process of intra and inter-sector diffusion of innovations took some time. o

Productivity increases were slow and uneven.

There was relative abundance of production factors.

There was a lot of capital in England (small investments compared to available capital). London was one of the most important World financial centers, that created trade accumulation. Despite this, the initial investment for factories was small. Labor was also abundant due to: •

Destruction of proto-industry and traditional manufactures

•

Population increases and small absorption of labor force by agriculture

Industrial wages remained low for a long time: •

Worker’s opportunity cost was the wage paid in the traditional lowproductivity sector (even a lower wage).

•

As long as the high productivity sector was small, it had a small impact in the labor market (unique for old and new industries).

•

In foreign markets England competed with the labor cost of countries with even cheaper labor.

Thanks to low wages, cheap energy, and low costs of production along with the technology, the British production was able to compete with Indian production. Income (W+P), W·L+r·K The I.R increased the inequality in the United Kingdom, economic growth tends to always generate more inequality since not everyone grows the same way. Inequality is measured by the Gini index.

Social Consequences Delay in the improvement in living conditions: •

Unequal increase in productivity in sectors sharing a single labor market.

•

Life cost increased more for poor people: goods consumed by poor people were those whose productivity increased less and so, its price increased

•

Progressive destruction of home and complementary activities

•

Destruction of welfare networks organized by parishes, guilds or the Church.

Demographic transition: From high birth rates and high mortality to low birth rates and low death rates Demographic boom: Intermediate period in the process of demographic transition in which birth rates are high and death rates already started falling. (Death rates decrease due to improvements in food and healthcare).

Diffusion of the I.R The diffusion of the Industrial Revolution technologies was a slow and uneven process. We can observe a double trend: •

Convergence with the leader country in a group of countries (US, Japan, Italy, Spain…)

•

Divergence of the rest of the world (The rest of the countries started growing slower)

This caused the Great Divergence; While industrialization spread in Europe, some Asian countries such as India or China experienced a process of deindustrialization. K. Pomeranz (2000): Before the Industrial Revolution, Europe did not surpass economically or technically the large Asian empires. The Industrial Revolution leader country (UK) developed a group of technologies according to its resource endowment and relative prices.

The first circle of diffusion of industrialization was composed of countries similar in terms of institutions, factor endowment and transport costs. •

First comers: France, Germany, USA, Switzerland, Belgium

•

Late joiners: Italy, Spain, Austria-Hungary, Russia, Japan, Sweden, Denmark, the Netherlands…

Advantages: •

Adaptation to existent technologies may foster an improvement in efficacy.

•

More able to take advantage of opportunities and discontinuities of technological change

Disadvantages: •

Higher barriers of entrance

•

Lower initial capacity of saving

•

Different factor endowment and relative prices of factors

•

Lower know-how and human capital endowment.

Practical Session 2: ``Quality of Life´´ during the Br Briti iti itish sh Industrial Revolution. Different indicators: Height (nutrition) / Life expectancy / Mortality / Literacy rate / Years of school attendance / Political rights / Civil rights / HDI / HDI adjusted with Gini Index Gini coefficient: Measures the extent in which income distribution between individuals or households deviates from a perfectly equal distribution. Measures the area between the Lorenz Curve and the hypothetical line that represents a perfect and absolute equality. It is expressed as the percentage occupied by that area in relation to the whole area below the absolute equality line.

A

B

La zona azul al sumarse hace el 100% de los ingresos, que es la diferencia con la línea de igualdad. Gini = 0 sería lo perfecto, 100 (o 1 depende como se este midiendo) significaría que los más ricos tendrían el 100% de la riqueza. G = A / (A + B) Life expectancy decreases during I.R. GDP per capita increases. Living conditions were worse in cities because of urbanization (pollution, hygiene…).

The diffusion of the Industria Industriall Revolution France Was one of the firs...