By Thomas Knapp, on January 3rd, 2012
I’m a huge fan of the changes described in Kevin Carson’s The Homebrew Industrial Revolution: A Low-Overhead Manifesto.
I love the fact that technology is enabling things like the re-localization of manufacture and a “small batch” ethos that lets people get something a lot closer to what they want instead of just having to settle for whatever one-size-fits-all model some megacorp produced a billion of.
If there’s a weakness there, I think it looks something like this [hat tip -- Judy Morris].
Fisker has built only 239 units of its 2012 Karma hybrid car, and is recalling them all because of a possible fire risk from coolant leaks.
Yes, the advantages of product continuity, economies of scale, etc. are over-rated in some important respects. But producing large quantities of a product that’s altered incrementally does lend itself to gathering more data from which problems can be detected and predicted.
Just as a ferinstance, as of 2010, Ford had sold more than 2.3 million Focuses over a 12-year period. Presumably real-world-experience information gathered from each previous year’s model (and over the history of its predecessor, the Escort) was used to improve the current one.
When you’ve only made 239 of a car, and only put 50 of those on the road, there’s a lot less specific data to generalize and improve from.
And what if the actual build of the car is done not by “repeat the same action over and over” assembly line workers, but by the actual customers; and not at one facility, but at one of a number of “micro-factories,” as with the ultra-cool Local Motors Rally Fighter? It seems that would make it a lot harder to reach a determination along the lines of “ah, that’s what’s causing those breakdowns — we should change the design to call for x pounds, instead of y pounds, of torque on that bolt.” Because you really have no way of knowing if your customer who built his car from your kit actually put x pounds of torque on the bolt, do you?
Then again, if you only produce 239 cars, I guess you don’t have to worry about recalling 3.8 million at one whack, do you? So if problems are more likely to go undetected/unpredicted in early design/testing, they’re also less widespread and easier to correct when you do detect them.
And the smaller the batch and/or more bespoke the final product, the more it’s a case of people getting what they actually want instead of what some bureaucratic suitie in Detroit decided they should have. Which, I think, goes a long way toward balancing out increased risk of undetected/unpredicted flaws. Especially since the Big Guys haven’t actually eliminated that risk, and in at least some cases seem to have just factored it in as a risk worth taking versus the bottom line.
By Winton Bates, on January 10th, 2011
While recently reading Deirdre McCloskey’s ‘Bourgeois Dignity’, Joel Mokyr’s ‘The Enlightened Economy’ and Eric Jones, ‘Locating the Industrial Revolution’ (discussed previously here, here and here) I was pleased to find that these authors have been able to make a strong case that the industrial revolution can be best explained by modern economic growth theory that emphasizes the importance of technological progress, innovation and productivity improvement. It is reassuring that this conceptual framework fits the facts relating to the history of the last few hundred years as well as comparative growth experiences of different countries in more recent times.
In their explanations, however, McCloskey and Mokyr move substantially away from the view that because ‘incentives matter’ the best explanation for everything must be found in changes in economic incentives. This does not necessarily involve moving away from a utility maximization framework. There is no reason why such a framework cannot recognize that inventors may be strongly influenced by the pleasure of discovery and recognition by their peers; innovators may obtain pleasure from seeing scientific knowledge being put to good use; and everyone may gain some satisfaction from acting in accordance with their own perceptions of their identity, whether that involves behaving like a scientist, a gentleman, a tycoon or a mendicant.
In explaining the industrial revolution Mokyr and McCloskey and Mokyr emphasize the importance of beliefs and ideologies – in particular those associated with the Enlightenment. Three inter-related strands of beliefs and ideologies connected to the Enlightenment seem to be particularly relevant:
First, Mokyr argues that the influence of the Baconian program – with its emphasis on research to solve practical problems – extended beyond formal scientific research. He makes a strong case that the ‘legitimization of systematic experiment carried over to the realm of technology’, including through the proliferation of provincial ‘philosophical’ societies discussing practical and technical issues.
Second, as emphasized by McCloskey, there was a bourgeois revaluation – a change in attitudes toward the middle classes, markets and innovation. Mokyr links this to norms relating to politeness and gentlemanly behaviour, and an apparent improvement in social trust which reduced transactions costs.
Third, there is the ideological change stemming directly from the success of the Scottish Enlightenment and, in particular, from publication of ‘Wealth of Nations’ by Adam Smith. As Mokyr writes:
‘The Enlightenment in its different manifestations advocated a set of new institutions that cleared up centuries of mercantilist policies, regulations and social controls, whose objective had been primarily to redistribute resources to politically connected groups and to enhance the interests of the Crown (the best connected group of all). The mercantilist world was unsuitable to a brave new world of continued technological progress driven by free markets, innovative entrepreneurship, and an internationally collaborative effort to advance technology’ (p. 486).
In reviewing Eric Jones book I asked myself whether the industrial revolution could be attributed to economic freedom and suggested that his book had reinforced my view that it could be (even though Jones does not argue strongly in favour of that view). My subsequent reading has not led me to change that view but it suggests that economists interested in economic growth should give more attention to beliefs and ideologies that lie behind the formal rules of the game and their incentive structures.
In writing this I am reminded of comments made by Douglass North in his Nobel Prize lecture in 1993: ‘It is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually. Since it is the norms that provide “legitimacy” to a set of rules, revolutionary change is never as revolutionary as its supporters desire and performance will be different than anticipated. And economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement. The implication is that transferring the formal political and economic rules of successful western market economies to Third World and eastern European economies is not a sufficient condition for good economic performance. Privatization is not a panacea for solving poor economic performance’.
The fact that privatization by itself is no panacea does not stop me from arguing in favour of it, but I take the point that economic freedom cannot be sustained unless prevailing beliefs, ideologies and norms are supportive.
By Winton Bates, on January 4th, 2011
Some readers may think this question is like asking whether the Pope is a Catholic. The question is worth considering, however, because it raises some fairly common misconceptions about the industrial revolution (some of which I held until recently).
My main reason for reading about the industrial revolution has to do with my interest in human flourishing. The industrial revolution led to a massive, unprecedented and ongoing improvement in living standards, beginning in Britain and then spreading to other parts of the world. From that perspective, the industrial revolution tends to be associated with the advent of sustained economic growth.
 However, Joel Mokyr suggests that the best available estimates indicate that growth in per capita income in Britain did not accelerate until the decades after 1830 – well after the beginning of the industrial revolution (‘The Enlightened Economy’, p 256). That makes sense if we define the industrial revolution in terms of the technological innovations which brought about a transformation in the way goods and services were produced in the British economy between 1760 and 1830. One reason why these innovations were not immediately reflected in higher per capita income growth was the rapid growth of population – the English population increased from 6.1 million to 13.1 million between 1760 and 1830 (p.257). Another reason was the initial concentration of major innovations in a relatively small, though rapidly growing, part of the British economy (p. 82).
Information from a table presented by Deirdre McCloskey is graphed below in order to provide some perspective on the contribution of different industries to productivity growth in Britain over the period from 1780 to 1860 (‘Bourgeois Dignity’, p.219).
Figure 1 shows the relatively rapid growth of productivity in some manufacturing industries as well as canals and railways.
Figure 2 shows that despite the more modest productivity growth rate in agriculture, the relatively large size of this sector means that over the period considered its contribution to overall productivity growth was comparable to that of the manufacturing industries with more rapid productivity growth.
So, was the industrial revolution mainly about the growth of manufacturing industry? Perhaps, if we define the industrial revolution so narrowly that it has to refer to the growth of manufacturing industry. If we do that, however, we need another term to describe the processes leading to the advent of economic growth in Britain. Joel Mokyr’s term, the industrial enlightenment, aptly describes the broader processes through which a social climate favourable to innovation was made possible by growing recognition that material progress could be achieved through advances in science and technology.
Mokyr puts the various phases of the industrial revolution in context as follows:
‘The Industrial Revolution was above all a beginning. It cannot be judged on its own grounds without considering what it led to. What is truly significant is not the wave of great inventions made in the years between 1765 and 1800, but the fact that this process did not subsequently fizzle out. Some societies, in Europe and Asia, had witnessed previous clusters of macroinventions, leading to substantial economic changes. … The “classical” Industrial Revolution in the eighteenth was not an altogether novel phenomenon. In contrast, the second and third waves in the nineteenth century, which made continuous technological progress the centrepiece of sustainable economic growth, were something never before witnessed and that constituted a sea change in economic history like few other phenomena ever had’ (p. 83-4).
By Winton Bates, on December 23rd, 2010
 Most of Deidre McCloskey’s important new book serves to establish that if we want to explain the industrial revolution we need to explain why so much innovation occurred in England from the late 18th century and through the 19th century. She suggests that we should dismiss attempts to explain the industrial revolution in terms of such factors as thrift, accumulation of capital (physical or human), transport, geography, natural resources, the slave trade, business organization, imperialism, eugenics and even foreign trade.
The style of the exposition suggests, at times, that Deidre may not suffer fools gladly (or has a wicked sense of humour): ‘If someone claims that foreign trade made possible, say, economies of scale in cotton textiles or shipping services she owes it to her readers (as I have already said twice: I wish you would pay attention) to explain why the gains on the swings are not lost on the roundabouts. Why do not the industries made smaller by the large extension of British foreign trade end up on the negative side of the account?’ (p 221).
Well, I’m not sure Deidre, perhaps there is a link between international trade, specialization and scale economies – but you may have discussed that possibility somewhere else in the book when I wasn’t paying attention. In any case, I agree with you that innovation must have been a lot more important than scale economies.
I was a little more concerned that I didn’t see any recognition of the possibility, as discussed in Eric Jones’ recent book (reviewed here), that clustering of manufacturing in the north of England – as a result of trade and specialization within England – provided an economic environment conducive to subsequent innovations. Perhaps middle class enrichment resulting from trade and specialization could also help to explain why the bourgeois revaluation occurred when and where it did. (The bourgeois revaluation is the greater approval of the middle classes – and of innovation and markets – that began to occur in thought and talk in Holland and England three centuries ago.)
My main concern, Deidre, is that in attempting to clear the field prior to sowing a new crop of ideas (or the old ideas you want to propagate anew) you may be inadvertently slashing and burning some other ideas that are worth preserving. This applies, in particular, to the relationship between institutional change and economic performance as discussed by Douglass North (‘Institutions, Institutional Change and Economic Performance’, 1990). I agree with you that North could not have been correct in attributing the industrial revolution to more secure property rights following the Glorious Revolution. There is, however, more to institutional change than more secure property rights. I reject your attempt to dismiss appeals to institutional change as ‘still another attempt to reduce one of the greatest surprises in human history to a materialist routine’ and to claim that changes in institutions did not have much to do with the industrial revolution (p. 354).
In fact, evidence that you cite in your book seems to conflict with your claim that changes in institutions – the rules of the game – had little to do with the industrial revolution. You acknowledge that ‘the norms of antibourgeois aristocrats and clerics did discourage innovation’ (p. 267). You also suggest: ‘Had the Ottoman or the Qing empires or the Japanese Shogunate admired trade and innovation sufficiently to overcome their worries about the maintenance of state power – encouraging innovation and having a go rather than crushing it – then they, not the Europeans, would have come first’ (p. 371). You note that in France and Spain in the 18th century a nobleman caught engaging in commerce could be stripped on his rank’ (p. 387) and that in France it was necessary to apply to the state for permission to open a factory (p. 395).
I think your true position may be that bourgeois dignity and institutions (economic freedom) are both important in explaining the industrial revolution. This comes through fairly clearly when you write: ‘By adopting the respect for deal-making and innovation and the liberty to carry out the deals that Amsterdam and London pioneered around 1700, the modern world was born’ (p. 397). In such passages you seem to be offering an encompassing theory incorporating both bourgeois dignity and institutional change.
So far so good. I can understand that ideology (an amalgam of perceptions and values) influences the climate of opinion toward commerce and innovation which in turn influences both informal institutions (conventions and codes of behaviour) and formal institutions (regulations, laws, constitutions) which may or may not provide a climate conducive to innovation. Is that all there is to understand?
Perhaps not. The missing element is a sense of personal identity. As you say: ‘In truth, the agent wants to act because she attributes meaning to her life … She is a human with an identity, not a Max U calculating machine like grass or bacteria or rats’ (p. 307).
That gets me thinking again about identity economics – the idea of George Akerlof and Rachel Kranton that people gain utility when their actions conform to the norms and ideals of their identity (which I first discussed here). Even a person with great potential to be innovative might find that difficult if the norms and ideals of their identity dictated that any attempt to innovate would be futile. If we start thinking in terms of identity economics, however, we might have to question the sub-title of your book – perhaps economics can explain the modern world after all.
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By Winton Bates, on December 6th, 2010
Before reading Eric Jones book, ‘Locating the Industrial Revolution’, I had thought that the reasons why the industrial revolution began when and where it did would have a lot to do with relative levels of economic freedom in England in the 18th and 19th centuries. The book seems to me to reinforce that view, even though it does not argue strongly in favour of it. The message I get from the book is that the political forces favouring greater economic freedom prevailed over opposing forces in those areas of economic policy that were most critical to economic growth at that time.
 My prior view that the industrial revolution would have had a lot to do with relative levels of economic freedom was associated to some extent with dissatisfaction with alternative explanations such as that offered by Gregory Clark (discussed here). I admit, however, that my prior views were most strongly influenced by contemporary econometric evidence that greater economic freedom tends to promote higher economic growth. I would not be surprised if Eric Jones considers that such reasoning displays ‘too great a willingness to accept dubious data as proxies for the real thing, and too much of a preference for neat solutions’ (p. 6). He uses those words as a general criticism of economists.
The main question that Jones considers in this book is why the location of manufacturing industry shifted from the south to the north of England prior to the industrial revolution. This is an important question because the clustering of industry in the north provided an economic environment conducive to subsequent innovations, including use of coal-fired steam engines as an energy source.
Jones suggests that the economic history of England does not provide neat solutions to the problem of locating the industrial revolution. He claims:
‘There is no determinate solution to the puzzle of why the industrial revolution took place, and when and where it did so. All that can be achieved is a narrowing of the range of possible mixes’ (p. 245).
Jones sees problems with a simple explanation in terms of levels of economic freedom:
‘Ordinarily we might expect that economic growth would be spurred by market freedoms but there are problems with this line of argument. A number of the outcomes do not seem to have been stable. Free-market preferences within the judicial system were inconsistent, since the judges reverted to precedent when it suited them – not that every law was enforced. Protective duties were raised precisely when “a modest flow of works” was starting to extol the virtues of free trade. Nor was corruption decisively reduced until some way into the 19th century’ (p. 243).
However, similar objections have been raised against attempts to explain China’s economic growth in recent decades as a consequence of market freedoms. A point that is often overlooked is that in considering the potential for economic growth offered in a particular economy by a particular level of economic freedom the most relevant comparison is with levels of economic freedom generally prevailing in other economies with similar income levels. An improvement in economic freedom in a low income country can provide an impetus to more rapid growth even though economic freedom remains heavily restricted.
Jones suggests that the main factor responsible for the redistribution of manufacturing activity to northern England was market integration associated with improvements in transportation. The merging of markets led to greater competition and specialization on the basis of comparative advantage – with a greater focus on agriculture in the south and manufacturing in the north. He points out, however, that these improvements in transportation often had to overcome substantial political obstacles from wealthy land-owners, whose concern to protect the social status that land ownership offered (linked to landscapes, recreation and privacy) often outweighed their interest in increasing the rental value of their land. He suggests that privatising of rights of way – described as ‘judicial theft of the subjects rights’ – was an ‘astonishingly common’ adverse effect of the enclosure of the commons (p. 153). The merging of markets was only possible because the judges and parliament together increasingly embraced market ideology and overlooked, rejected or struck down local protectionist measures (p. 185).
It seems to me that Eric Jones has provided strong evidence that the industrial revolution occurred when and where it did because market ideology prevailed sufficiently to enable market integration, specialization on the basis of comparative advantage and the clustering of manufacturing industry. I am conscious, however, that he might suggest that in offering that summary my preference for neat solutions has gotten the better of me.
By Ajay Shah, on July 16th, 2010
The top selling Indian newspapers according to Amazon’s kindle subscriptions.
India’s courts may be in a slow process of reshaping India into a liberal democracy. Here is a Supreme Court ruling which blocks the Maharasthra government from interfering with the rights of a citizen to read a certain book. Sadly, it was done on a technicality.
Manish Sabharwal in the Financial Express on an important new initiative of the Ministry of Labour.Eric Bellman in the Wall Street Journal on the rise of Madras in automobile manufacturing. There is much strength there in electronics manufacturing also.
Dhiraj Nayyar in the Indian Express on the interfaces between mobile telephony and banking. [also see].
Kerala is Number 1 by Mahesh Vyas in the Business Standard.
On the difficulties of ULIPs and the recent ordinance, see Dhirendra Kumar in the Financial Express.
A story by Steve Lohr and John Markoff in the New York Times suggests that low end outsourcing to India could be under attack from new technology.
B. S. Raghavan in the Hindu Business Line on inflation targeting at RBI.
Hindustan Times and Mint have built an interesting new web page : The Indian innovation revolution.
We in India are very convinced that it is good to have a world where every single individual is numbered and trackable. But there are many nice things about anonymity and the creation of anonymous personas. See this story of Why, a person who did some amazing things anonymously, and then shut down this life when it looked like his anonymity was under threat. The idea of being able to create and live multiple anonymous invented personas has long been a meme in the hackish community – e.g. see True names by Vernor Vinge.
An interesting interview by Samir Sachdeva with Nandan Nilekani in Governance NOW magazine.
As I read Lose a general, win a war by Thomas E. Ricks in the New York Times, I was struck by this remarkable flexibility of labour contracts, which must work wonders for shaping incentives correctly.
Tarun Ramadorai on empirical analysis of the efforts at banning short selling of recent years.
David Friedman has released a free pdf of the 2nd edition of his important book The machinery of freedom. Hmm, that’s a good strategy: authors should open source edition $n$ when they start on edition $n+1$. Also see: a surge in interest in Friedrich von Hayek’s The road to serfdom.
Ruuel Marc Gerecht has some interesting ideas in the New York Times on the use of information technology to assist the resistance in Iran. I wonder if similar ideas can be deployed on the problems of China as well.
Tom Wright has an article in the Wall Street Journal about Zeeshan-ul-hassan Usmani, a Pakistani scientist working on explosions and suicide bombings. Also see Pervez Hoodbhoy on Pakistan’s existential problems.
Calzolari, Levi, Navaretti, Pozzolo, writing on voxEU, show that multinational banks were a source of stability in the crisis. Also see Internal capital markets and lending by multinational bank subsidiaries by de Haas and van Lelyveld, in the Journal of Financial Intermediation.
Ila Patnaik on the Chinese exchange rate regime and its implications for India.
Inflation targeting turns 20 by Scott Roger, in Finance & Development, March 2010.
Edward Glaeser reviews a book by Joel Mokyr on what made the industrial revolution. It makes you think about the nascent capitalism that we see in India.
The top
selling Indian newspapers according to Amazon’s kindle subscriptions.
India’s courts may be in a slow process of reshaping India into a
liberal democracy. Here is
a Supreme
Court ruling which blocks the Maharasthra government from
interfering with the rights of a citizen to read a certain
book. Sadly, it was done on a technicality.
Manish
Sabharwal in the Financial Express on an important new
initiative of the Ministry of Labour.
Eric
Bellman in the Wall Street Journal on the rise of
Madras in automobile manufacturing. There is much strength there in
electronics manufacturing also.
Dhiraj
Nayyar in the Indian Express on the interfaces between
mobile telephony and
banking. [also
see].
Kerala
is Number 1 by Mahesh Vyas in the Business Standard.
On
the difficulties
of ULIPs and the recent ordinance,
see Dhirendra
Kumar in the Financial Express.
A
story by Steve Lohr and John Markoff in the New York
Times suggests that low end outsourcing to India could be
under attack from new technology.
B. S. Raghavan
in the Hindu Business Line on inflation targeting at RBI.
Hindustan Times and Mint have built an interesting
new web page
: The
Indian innovation revolution.
We in India are very convinced that it is good to have a world
where every single individual is numbered and trackeable. But there
are many nice things about anonymity and the creation of anonymous
personas. See this
story of _Why, a person who did some amazing things anonymously,
and then shut down this life when it looked like his anonymity was
under threat. The idea of being able to create and live multiple
anonymous invented personas has long been a meme in the hackish
community – e.g. see
True
names by Vernor Vinge.
An
interesting interview
by Samir Sachdeva with Nandan Nilekani in Governance NOW
magazine.
As I
read Lose
a general, win a war by Thomas E. Ricks in the New York
Times, I was struck by this remarkable flexibility of labour
contracts, which must work wonders for shaping incentives
correctly.
Tarun
Ramadorai on empirical analyses of the efforts at banning
short selling of recent years.
David Friedman
has released
a free pdf of the 2nd edition of his important
book The
machinery of freedom. Hmm, that’s a good strategy: authors
should open source edition $n$ when they start on edition
$n+1$. Also
see: a
surge in interest in Friedrich von Hayek’s The road to serfdom.
Ruuel
Marc Gerecht has some interesting ideas in the New York
Times on the use of information technology to assist the
resistance in Iran. I wonder if similar ideas can be deployed on the
problems of China as well.
Tom
Wright has an article in the Wall Street Journal about
Zeeshan-ul-hassan Usmani, a Pakistani scientist working on
explosions and suicide bombings. Also
see Pervez
Hoodbhoy on Pakistan’s existential problems.
Calzolari,
Levi, Navaretti, Pozzolo, writing on voxEU, show that
multinational banks were a source of stability in the crisis. Also
see Internal
capital markets and lending by multinational bank
subsidiaries by de Haas and van Lelyveld, in the Journal
of Financial Intermediation.
Ila
Patnaik on the Chinese exchange rate regime and its
implications for India.
Inflation
targeting turns 20 by Scott Roger, in Finance &
Development, March 2010.
Edward
Glaeser reviews a book by Joel Mokyr on what made the
industrial revolution. It makes you think about the nascent
capitalism that we see in India.
Anyone interested in the world of the Internet and computer
technology must read:
The State of the Internet Operating
System by Time
O’Reilly: part
1
and part
2.
John Naughton in the Guardian.
Clive
Thompson in the New York Times on IBM’s computer that
plays `Jeopardy’.
What’s
the greatest software ever written? by Charles Babcock,
in Information Week
The
Steve Lohr and John Markoff story about speech recognition, and
system-building around it, mentioned above.
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