Forging Ahead, Falling Behind and Fighting Back: British Economic Growth from the Industrial Revolution to the Financial Crisis

"That leads to our final book, which is Nick Crafts’s own 2018 publication, Forging Ahead, Falling Behind and Fighting Back: British Economic Growth from the Industrial Revolution to the Financial Crisis . This is the book in which Nick Crafts tries to put everything together from the past 40 years of research on long-term economic growth in Britain, in which Crafts himself was a moving spirit. It’s incisively written, analytical, and very wide-ranging. It provides a superbly coherent and level-headed synthesis of all the recent scholarship on the Industrial Revolution—as well as what happened in Britain afterwards. Crafts was a pioneer in using neoclassical growth theory to carry out historical national income accounting. A fascinating thing in this book is that Crafts presents the most accurate and up-to-date estimates of macroeconomic indicators for different world economies across the centuries, and discusses what they mean for long-term historical growth. I chose this book because it’s quantitative but also synthetic—it puts together the whole story of British economic growth over the long term. The way Crafts does that is to confront theories of economic growth which economists have put forward with a deep and comprehensive knowledge of the historical record. It’s partly a story of rent-seeking but not just that. Crafts has a vision of economic growth that is multivariate. He doesn’t think that just one thing matters. He sees a lot of different variables coming in to explain growth. He shows that some of the new growth theories of recent decades are more helpful than the original growth theories of the 1950s. This is because the new growth theories give a role to institutions and policies and help explain why growth outcomes diverge across economies. Crafts makes a good case that innovation is endogenous, it’s affected by economic incentives, institutions matter, policy matters, history matters. So, in that sense, he does touch on those issues of rent-seeking. But more than that, Crafts emphasises something that can sometimes be lost sight of, which is that although we call the Industrial Revolution a ‘revolution’, it was quite a gradual process. Economic growth in eighteenth-century Britain was slow compared to later periods, although fast compared to anything that had happened before. Occupational structures were relatively slow in changing, but that was partly because Britain already had quite a precociously industry- and service-oriented occupational structure before the Industrial Revolution. So the Industrial Revolution alone didn’t change things as much as we had originally thought. Likewise, the rate of technological progress, although faster than it had ever been anywhere before, except possibly Song China, was still pretty slow. For instance, water power continued to be more important than steam power in Britain until 1830. For the first 70 years of the Industrial Revolution, a majority of the new machines and factories were being run by an energy source that people had been using since the 4th century BC. This gradualism is something which makes Crafts conclude that the historical legacy matters a lot. Something he emphasises both for the Industrial Revolution and for Britain’s later economic development is what economists call ‘path dependence’—when the decisions presented to people are dependent on previous decisions or experiences in the past. So the legacy of the past affects what happens in any economy in the present. That is part of the case for why we need economic history. Understanding what that historical legacy actually is helps us understand what’s going on in the economy now. Get the weekly Five Books newsletter Crafts’s argument is that the legacy from the past was exceptionally good for Britain in the 1760s. It enabled Britain to be the first to industrialise, because the policies and institutions the country had developed in preceding centuries were unusually good—at least in 18th-century terms. If a mission from the IMF or the World Bank was sent back to the 18th century to assess British policies and institutions, it would report back and say they weren’t up to much. But by the standards of the time, they were excellent. Britain had the largest free trade area in the world, and a very well-integrated domestic market. It had many vibrant towns and cities and was twice as urbanised as France. It was using coal-based technologies long before the Industrial Revolution. And it did have—Crafts emphasises this—a lot less rent-seeking absorbing people’s talents. In that sense, Britain had a good historical legacy in the 18th century. But then, Crafts argues, the way Britain developed during the Industrial Revolution created a new path-dependence which was much less favourable. The experience of being the first to industrialise caused Britain to develop a bunch of idiosyncratic features—including certain types of rent-seeking—that turned into a bad legacy for the economy in the late 19th and in the 20th century. The news coming out of Africa always seems to be bad. But an article I read last month in The Economist argues that African industry is doing better than we realise and that the well-worn path to prosperity through an Industrial Revolution is still open. Africa is actually a good illustration of those two countervailing forces, the incredible innovativeness and urge to growth in even the poorest economies and the equally incredible urge to engage in rent-seeking, which chokes off growth. We see both of these in every developing economy in history, and we are seeing both these forces at work in Africa and Asia now. I do think that all these books have a lot in common, even though they might seem to be making different arguments. One thing that comes out of all five is the economic importance of history—of formulating hypotheses about the past, testing them rigorously, and debating them vigorously. Another is that factors that aren’t purely economic, that have to do with institutions and politics and coercion and social relationships, create incentives for people to innovate and set up businesses and trust one another enough to engage in peaceful exchange—all of those matter a lot to whether you can have an industrial revolution in Britain in 1760 or in Africa now. All five books reveal—either at centre stage or lurking behind the scenes—the importance of social institutions, the rules of the game that create incentives for us to behave in productive ways or unproductive ones. All these books on the Industrial Revolution contain important lessons from history for developing economies today."