Praise for why Nations Fail



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THE GLORIOUS REVOLUTION
After victory in the Glorious Revolution, Parliament and William negotiated a new constitution. The changes were foreshadowed by William’s “Declaration,” made shortly prior to his invasion. They were further enshrined in the Declaration of Rights, produced by Parliament in February 1689. The Declaration was read out to William at the same session where he was offered the crown. In many ways the Declaration, which would be called the Bill of Rights after its signing into law, was vague. Crucially, however, it did establish some central constitutional principles. It determined the succession to the throne, and did so in a way that departed significantly from the then-received hereditary principles. If Parliament could remove a monarch and replace him with one more to their liking once, then why not again? The Declaration of Rights also asserted that the monarch could not suspend or dispense with laws, and it reiterated the illegality of taxation without parliamentary consent. In addition, it stated that there could be no standing army in England without parliamentary consent. Vagueness entered into such clauses as number 8, which stated, “The election of members of Parliament ought to be free,” but did not specify how “free” was to be determined. Even vaguer was clause 13, whose main point was that Parliaments ought to be held frequently. Since when and whether Parliament would be held had been such a contentious issue for the entire century, one might have expected much more specificity in this clause. Nevertheless, the reason for this vague wording is clear. Clauses have to be enforced. During the reign of Charles II, a Triennial Act had been in place that asserted that Parliaments had to be called at least once every three years. But Charles ignored it, and nothing happened, because there was no method of enforcing it. After 1688, Parliament could have tried to introduce a method for enforcing this clause, as the barons had done with their council after King John signed the Magna Carta. They did not do so because they did not need to. This was because authority and decision-making power switched to Parliament after 1688. Even without specific constitutional rules or laws, William simply gave up on many of the practices of previous kings. He stopped interfering in legal decisions and gave up previous “rights,” such as getting the customs revenues for life. Taken together, these changes in political institutions represented the triumph of Parliament over the king, and thus the end of absolutism in England and subsequently Great Britain—as England and Scotland were united by the Act of Union in 1707. From then on Parliament was firmly in control of state policy. This made a huge difference, because the interests of Parliament were very different from those of the Stuart kings. Since many of those in Parliament had important investments in trade and industry, they had a strong stake in enforcing property rights. The Stuarts had frequently infringed on property rights; now they would be upheld. Moreover, when the Stuarts controlled how the government spent money, Parliament opposed greater taxes and balked at strengthening the power of the state. Now that Parliament itself controlled spending, it was happy to raise taxes and spend the money on activities that it deemed valuable. Chief among them was the strengthening of the navy, which would protect the overseas mercantile interests of many of the members of Parliament.

Even more important than the interest of parliamentarians was the emerging pluralistic nature of political institutions. The English people now had access to Parliament, and the policy and economic institutions made in Parliament, in a way they never had when policy was driven by the king. This was partially, of course, because members of Parliament were elected. But since England was far from being a democracy in this period, this access provided only a modest amount of responsiveness. Among its many inequities was that less than 2 percent of the population could vote in the eighteenth century, and these had to be men. The cities where the Industrial Revolution took place, Birmingham, Leeds, Manchester, and Sheffield, had no independent representation in Parliament. Instead, rural areas were overrepresented. Just as bad, the right to vote in the rural areas, the “counties,” was based on ownership of land, and many urban areas, the “boroughs,” were controlled by a small elite who did not allow the new industrialists to vote or run for office. In the borough of Buckingham, for instance, thirteen burgesses had the exclusive right to vote. On top of this there were the “rotten boroughs,” which had historically had the right to vote but had “rotted away,” either because their population had moved over time or, in the case on Dunwich on the east coast of England, had actually fallen into the ocean as a result of coastal erosion. In each of these rotten boroughs, a small number of voters elected two members of Parliament. Old Sarum had seven voters, Dunwich thirty-two, and each elected two members of Parliament.

But there were other ways to influence Parliament and thus economic institutions. The most important was via petitioning, and this was much more significant than the limited extent of democracy for the emergence of pluralism after the Glorious Revolution. Anybody could petition Parliament, and petition they did. Significantly, when people petitioned, Parliament listened. It is this more than anything that reflects the defeat of absolutism, the empowerment of a fairly broad segment of society, and the rise of pluralism in England after 1688. The frantic petitioning activity shows that it was indeed such a broad group in society, far beyond those sitting or even being represented in Parliament, that had the power to influence the way the state worked. And they used it.

The case of monopolies best illustrates this. We saw above how monopolies were at the heart of extractive economic institutions in the seventeenth century. They came under attack in 1623 with the Statute of Monopolies, and were a serious bone of contention during the English Civil War. The Long Parliament abolished all the domestic monopolies that so impinged on people’s lives. Though Charles II and James II could not bring these back, they managed to maintain the ability to grant overseas monopolies. One was the Royal African Company, whose monopoly charter was issued by Charles II in 1660. This company held a monopoly on the lucrative African slave trade, and its governor and major shareholder was Charles’s brother James, soon to become James II. After 1688 the Company lost not just its governor, but its main supporter. James had assiduously protected the monopoly of the company against “interlopers,” the independent traders who tried to buy slaves in West Africa and sell them in the Americas. This was a very profitable trade, and the Royal African Company faced a lot of challenges, since all other English trade in the Atlantic was free. In 1689 the Company seized the cargo of an interloper, one Nightingale. Nightingale sued the Company for illegal seizure of goods, and Chief Justice Holt ruled that the Company’s seizure was unlawful because it was exercising a monopoly right created by royal prerogative. Holt reasoned that monopoly privileges could be created only by statute, and this had to be done by Parliament. So Holt pushed all future monopolies, not just of the Royal Africa Company, into the hands of Parliament. Before 1688 James II would quickly have removed any judge who made such a ruling. After 1688 things were different.

Parliament now had to decide what to do with the monopoly, and the petitions began to fly. One hundred and thirty-five came from interlopers demanding free access to trade in the Atlantic. Though the Royal African Company responded in kind, it could not hope to match the number or scope of the petitions demanding its demise. The interlopers succeeded in framing their opposition in terms not just of narrow self-interest, but of national interest, which indeed it was. As a result, only 5 of the 135 petitions were signed by the interlopers themselves, and 73 of the interlopers’ petitions came from the provinces outside London, as against 8 for the Company. From the colonies, where petitioning was also allowed, the interlopers gathered 27 petitions, the Company 11. The interlopers also gathered far more signatures for their petitions, in total 8,000, as opposed to 2,500 for the Company. The struggle continued until 1698, when the Royal African Company monopoly was abolished.

Along with this new locus for the determination of economic institutions and the new responsiveness after 1688, parliamentarians started making a series of key changes in economic institutions and government policy that would ultimately pave the way for the Industrial Revolution. Property rights eroded under the Stuarts were strengthened. Parliament began a process of reform in economic institutions to promote manufacturing, rather than taxing and impeding it. The “hearth tax”—an annual tax for each fireplace or stove, which fell most heavily on manufacturers, who were bitterly opposed to it—was abolished in 1689, soon after William and Mary ascended the throne. Instead of taxing hearths, Parliament moved to start taxing land.

Redistributing the tax burden was not the only pro-manufacturing policy that Parliament supported. A whole series of acts and legislations that would expand the market and the profitability of woolen textiles was passed. This all made political sense, since many of the parliamentarians who opposed James were heavily invested in these nascent manufacturing enterprises. Parliament also passed legislation that allowed for a complete reorganization of property rights in land, permitting the consolidation and elimination of many archaic forms of property and user rights.

Another priority of Parliament was reforming finance. Though there had been an expansion of banking and finance in the period leading up to the Glorious Revolution, this process was further cemented by the creation of the Bank of England in 1694, as a source of funds for industry. It was another direct consequence of the Glorious Revolution. The foundation of the Bank of England paved the way for a much more extensive “financial revolution,” which led to a great expansion of financial markets and banking. By the early eighteenth century, loans would be available to everyone who could put up the necessary collateral. The records of a relatively small bank, C. Hoare’s & Co. in London, which have survived intact from the period 1702–1724, illustrate this point. Though the bank did lend money to aristocrats and lords, fully two-thirds of the biggest borrowers from Hoare’s over this period were not from the privileged social classes. Instead they were merchants and businessmen, including one John Smith, a man with the name of the eponymous average Englishman, who was loaned £2,600 by the bank during the period 1715–1719.

So far we have emphasized how the Glorious Revolution transformed English political institutions, making them more pluralistic, and also started laying the foundations for inclusive economic institutions. There is one more significant change in institutions that emerged from the Glorious Revolution: Parliament continued the process of political centralization that was initiated by the Tudors. It was not just that constraints increased, or that the state regulated the economy in a different way, or that the English state spent money on different things; but also the capability and capacity of the state increased in all directions. This again illustrates the linkages between political centralization and pluralism: Parliament had opposed making the state more effective and better resourced prior to 1688 because it could not control it. After 1688 it was a different story.

The state started expanding, with expenditures soon reaching around 10 percent of national income. This was underpinned by an expansion of the tax base, particularly with respect to the excise tax, which was levied on the production of a long list of domestically produced commodities. This was a very large state budget for the period, and is in fact larger than what we see today in many parts of the world. The state budgets in Colombia, for example, reached this relative size only in the 1980s. In many parts of sub-Saharan Africa—for example, in Sierra Leone—the state budget even today would be far smaller relative to the size of the economy without the large inflows of foreign aid.

But the expansion of the size of the state is only part of the process of political centralization. More important than this was the qualitative way the state functioned and the way those who controlled it and those who worked in it behaved. The construction of state institutions in England reached back into the Middle Ages, but as we’ve seen (this page), steps toward political centralization and the development of modern administration were decisively taken by Henry VII and Henry VIII. Yet the state was still far from the modern form that would emerge after 1688. For example, many appointees were made on political grounds, not because of merit or talent, and the state still had a very limited capacity to raise taxes.

After 1688 Parliament began to improve the ability to raise revenue through taxation, a development well illustrated by the excise tax bureaucracy, which expanded rapidly from 1,211 people in 1690 to 4,800 by 1780. Excise tax inspectors were stationed throughout the country, supervised by collectors who engaged in tours of inspection to measure and check the amount of bread, beer, and other goods subject to the excise tax. The extent of this operation is illustrated by the reconstruction of the excise rounds of Supervisor George Cowperthwaite by the historian John Brewer. Between June 12 and July 5, 1710, Supervisor Cowperthwaite traveled 290 miles in the Richmond district of Yorkshire. During this period he visited 263 victualers, 71 maltsters, 20 chandlers, and one common brewer. In all, he took 81 different measurements of production and checked the work of 9 different excisemen who worked for him. Eight years later we find him working just as hard, but now in the Wakefield district, in a different part of Yorkshire. In Wakefield, he traveled more than nineteen miles a day on average and worked six days a week, normally inspecting four or five premises. On his day off, Sunday, he made up his books, so we have a complete record of his activities. Indeed, the excise tax system had very elaborate record keeping. Officers kept three different types of records, all of which were supposed to match one another, and any tampering with these records was a serious offense. This remarkable level of state supervision of society exceeds what the governments of most poor countries can achieve today, and this in 1710. Also significantly, after 1688 the state began to rely more on talent and less on political appointees, and developed a powerful infrastructure to run the country.



THE INDUSTRIAL REVOLUTION
The Industrial Revolution was manifested in every aspect of the English economy. There were major improvements in transportation, metallurgy, and steam power. But the most significant area of innovation was the mechanization of textile production and the development of factories to produce these manufactured textiles. This dynamic process was unleashed by the institutional changes that flowed from the Glorious Revolution. This was not just about the abolition of domestic monopolies, which had been achieved by 1640, or about different taxes or access to finance. It was about a fundamental reorganization of economic institutions in favor of innovators and entrepreneurs, based on the emergence of more secure and efficient property rights.

Improvements in the security and efficiency of property rights, for example, played a central role in the “transportation revolution,” paving the way for the Industrial Revolution. Investment in canals and roads, the so-called turnpikes, massively increased after 1688. These investments, by reducing the costs of transportation, helped to create an important prerequisite for the Industrial Revolution. Prior to 1688, investment in such infrastructure had been impeded by arbitrary acts by the Stuart kings. The change in the situation after 1688 is vividly illustrated by the case of the river Salwerpe, in Worcestershire, England. In 1662 Parliament passed an act to encourage investment to make the Salwerpe navigable, and the Baldwyn family invested £6,000 to this end. In return they got the right to charge people for navigation on the river. In 1693 a bill was introduced to Parliament to transfer the rights to charge for navigation to the Earl of Shrewsbury and Lord Coventry. This act was challenged by Sir Timothy Baldwyn, who immediately submitted a petition to Parliament claiming that the proposed bill was essentially expropriating his father, who had already heavily invested in the river in anticipation of the charges he could then levy. Baldwyn argued that “the new act tends to make void the said act, and to take away all the works and materials done in pursuance thereof.” Reallocation of rights such as this was exactly the sort of thing done by Stuart monarchs. Baldwyn noted, “[I]t is of dangerous consequence to take away any person’s right, purchased under an act of Parliament, without their consent.” In the event, the new act failed, and Baldwyn’s rights were upheld. Property rights were much more secure after 1688, partly because securing them was consistent with the interests of Parliament and partly because pluralistic institutions could be influenced by petitioning. We see here that after 1688 the political system became significantly more pluralistic and created a relatively level playing field within England.

Underlying the transportation revolution and, more generally, the reorganization of land that took place in the eighteenth century were parliamentary acts that changed the nature of property ownership. Until 1688 there was even the legal fiction that all the land in England was ultimately owned by the Crown, a direct legacy from the feudal organization of society. Many pieces of land were encumbered by numerous archaic forms of property rights and many cross-cutting claims. Much land was held in so-called equitable estates, which meant that the landowner could not mortgage, lease, or sell the land. Common land could often be used only for traditional uses. There were enormous impediments to using land in ways that would be economically desirable. Parliament began to change this, allowing groups of people to petition Parliament to simplify and reorganize property rights, alterations that were subsequently embodied into hundreds of acts of Parliament.

This reorganization of economic institutions also manifested itself in the emergence of an agenda to protect domestic textile production against foreign imports. Not surprisingly, parliamentarians and their constituents were not opposed to all entry barriers and monopolies. Those that would increase their own market and profits would be welcome. However, crucially, the pluralistic political institutions—the fact that Parliament represented, empowered, and listened to a broad segment of society—meant that these entry barriers would not choke other industrialists or completely shut out newcomers, as the Serrata did in Venice (this pagethis page). The powerful woolen manufacturers soon made this discovery.

In 1688 some of the most significant imports into England were textiles from India, calicoes and muslins, which comprised about one-quarter of all textile imports. Also important were silks from China. Calicoes and silks were imported by the East India Company, which prior to 1688 enjoyed a government-sanctioned monopoly over the trade with Asia. But the monopoly and the political power of the East India Company was sustained through heavy bribes to James II. After 1688 the company was in a vulnerable position and soon under attack. This took the form of an intense war of petitions with traders hoping to trade in the Far East and India demanding that Parliament sanction competition for the East India Company, while the company responded with counterpetitions and offers to lend Parliament money. The company lost, and a new East India Company to compete with it was founded. But textile producers did not just want more competition in the trade to India. They wanted imports of cheap Indian textiles (calicoes) taxed or even banned. These producers faced strong competition from these cheap Indian imports. At this point the most important domestic manufacturers produced woolen textiles, but the producers of cotton cloths were becoming both more important economically and more powerful politically.

The wool industry mounted attempts to protect itself as early as the 1660s. It promoted the “Sumptuary Laws,” which, among other things, prohibited the wearing of lighter cloth. It also lobbied Parliament to pass legislation in 1666 and 1678 that would make it illegal for someone to be buried in anything other than a woolen shroud. Both measures protected the market for woolen goods and reduced the competition that English manufacturers faced from Asia. Nevertheless, in this period the East India Company was too strong to restrict imports of Asian textiles. The tide changed after 1688. Between 1696 and 1698, woolen manufacturers from East Anglia and the West Country allied with silk weavers from London, Canterbury, and the Levant Company to restrict imports. The silk importers from the Levant, even if they had recently lost their monopoly, wished to exclude Asian silks to create a niche for silks from the Ottoman Empire. This coalition started to present bills to Parliament to place restrictions on the wearing of Asian cottons and silks, and also restrictions on the dyeing and printing of Asian textiles in England. In response, in 1701, Parliament finally passed “an Act for the more effectual imploying the poor, by incouraging the manufactures of this kingdom.” From September 1701, it decreed: “All wrought silks, bengals and stuffs, mixed with silk of herba, of the manufacture of Persia, China, or East-India, all Calicoes painted, dyed, printed, or stained there, which are or shall be imported into this kingdom, shall not be worn.”

It was now illegal to wear Asian silks and calicoes in England. But it was still possible to import them for reexport to Europe or elsewhere, in particular to the American colonies. Moreover, plain calicoes could be imported and finished in England, and muslins were exempt from the ban. After a long struggle, these loopholes, as the domestic woolen textile manufacturers viewed them, were closed by the Calicoe Act of 1721: “After December 25, 1722, it shall not be lawful for any person or persons whatsoever to use or wear in Great Britain, in any garment or apparel whatsoever, any printed, painted, stained or dyed Calicoe.” Though this act removed competition from Asia for English woolens, it still left an active domestic cotton and linen industry competing against the woolens: cotton and linen were mixed to produce a popular cloth called fustian. Having excluded Asian competition, the wool industry now turned to clamp down on linen. Linen was primarily made in Scotland and Ireland, which gave some scope to an English coalition to demand those countries’ exclusion from English markets. However, there were limits to the power of the woolen manufacturers. Their new attempts encountered strong opposition from fustian producers in the burgeoning industrial centers of Manchester, Lancaster, and Liverpool. The pluralistic political institutions implied that all these different groups now had access to the policy process in Parliament via voting and, more important, petitioning. Though the petitions flew from the pens of both sides, amassing signatures for and against, the outcome of this conflict was a victory for the new interests against those of the wool industry. The Manchester Act of 1736 agreed that “great quantities of stuffs made from linen yarn and cotton wool have for several years past been manufactured, and have been printed and painted within this kingdom of Great Britain.” It then went on to assert that “nothing in the said recited Act [of 1721] shall extend or be construed to prohibit the wearing or using in apparel, household stuff, furniture or otherwise, any sort of stuff made out of linen yarn and cotton wool, manufactured and printed or painted with any colour or colours within the kingdom of Great Britain.”

The Manchester Act was a significant victory for the nascent cotton manufacturers. But its historical and economic significance was in fact much greater. First, it demonstrated the limits of entry barriers that the pluralistic political institutions of parliamentary England would permit. Second, over the next half century, technological innovations in the manufacture of cotton cloth would play a central role in the Industrial Revolution and fundamentally transform society by introducing the factory system.

After 1688, though domestically a level playing field emerged, internationally Parliament strove to tilt it. This was evident not only from the Calicoe Acts but also from the Navigation Acts, the first of which was passed in 1651, and they remained in force with alternations for the next two hundred years. The aim of these acts was to facilitate England’s monopolization of international trade—though crucially this was monopolization not by the state but by the private sector. The basic principle was that English trade should be carried in English ships. The acts made it illegal for foreign ships to transport goods from outside Europe to England or its colonies, and it was similarly illegal for third-party countries’ ships to ship goods from a country elsewhere in Europe to England. This advantage for English traders and manufacturers naturally increased their profits and may have further encouraged innovation in these new and highly profitable activities.

By 1760 the combination of all these factors—improved and new property rights, improved infrastructure, a changed fiscal regime, greater access to finance, and aggressive protection of traders and manufacturers—was beginning to have an effect. After this date, there was a jump in the number of patented inventions, and the great flowering of technological change that was to be at the heart of the Industrial Revolution began to be evident. Innovations took place on many fronts, reflecting the improved institutional environment. One crucial area was power, most famously the transformations in the use of the steam engine that were a result of James Watt’s ideas in the 1760s.

Watt’s initial breakthrough was to introduce a separate condensing chamber for the steam so that the cylinder that housed the piston could be kept continually hot, instead of having to be warmed up and cooled down. He subsequently developed many other ideas, including much more efficient methods of converting the motion of the steam engine into useful power, notably his “sun and planets” gear system. In all these areas technological innovations built on earlier work by others. In the context of the steam engine, this included early work by English inventor Thomas Newcomen and also by Dionysius Papin, a French physicist and inventor.

The story of Papin’s invention is another example of how, under extractive institutions, the threat of creative destruction impeded technological change. Papin developed a design for a “steam digester” in 1679, and in 1690 he extended this into a piston engine. In 1705 he used this rudimentary engine to build the world’s first steamboat. Papin was by this time a professor of mathematics at the University of Marburg, in the German state of Kassel. He decided to steam the boat down the river Fulda to the river Weser. Any boat making this trip was forced to stop at the city of Münden. At that time, river traffic on the Fulda and Weser was the monopoly of a guild of boatmen. Papin must have sensed that there might be trouble. His friend and mentor, the famous German physicist Gottfried Leibniz, wrote to the Elector of Kassel, the head of state, petitioning that Papin should be allowed to “… pass unmolested …” through Kassel. Yet Leibniz’s petition was rebuffed and he received the curt answer that “the Electoral Councillors have found serious obstacles in the way of granting the above petition, and, without giving their reasons, have directed me to inform you of their decision, and that in consequence the request is not granted by his Electoral Highness.” Undeterred, Papin decided to make the journey anyway. When his steamer arrived at Münden, the boatmen’s guild first tried to get a local judge to impound the ship, but was unsuccessful. The boatmen then set upon Papin’s boat and smashed it and the steam engine to pieces. Papin died a pauper and was buried in an unmarked grave. In Tudor or Stuart England, Papin might have received similar hostile treatment, but this all changed after 1688. Indeed, Papin was intending to sail his boat to London before it was destroyed.

In metallurgy, key contributions were made in the 1780s by Henry Cort, who introduced new techniques for dealing with impurities in iron, allowing for a much better quality wrought iron to be produced. This was critical for the manufacture of machine parts, nails, and tools. The production of vast quantities of wrought iron using Cort’s techniques was facilitated by the innovations of Abraham Darby and his sons, who pioneered the use of coal to smelt iron beginning in 1709. This process was enhanced in 1762 by the adaptation, by John Smeaton, of water power to operate blowing cylinders in making coke. After this, charcoal vanished from the production of iron, to be replaced by coal, which was much cheaper and more readily available.

Even though innovation is obviously cumulative, there was a distinct acceleration in the middle of the eighteenth century. In no place was this more visible than in textile production. The most basic operation in the production of textiles is spinning, which involves taking plant or animal fibers, such as cotton or wool, and twisting them together to form yarn. This yarn is then woven to make up textiles. One of the great technological innovations of the medieval period was the spinning wheel, which replaced hand spinning. This invention appeared around 1280 in Europe, probably disseminating from the Middle East. The methods of spinning did not change until the eighteenth century. Significant innovations began in 1738, when Lewis Paul patented a new method of spinning using rollers to replace human hands to draw out the fibers being spun. The machine did not work well, however, and it was the innovations of Richard Arkwright and James Hargreaves that truly revolutionized spinning.

In 1769 Arkwright, one of the dominant figures of the Industrial Revolution, patented his “water frame,” which was a huge improvement over Lewis’s machine. He formed a partnership with Jedediah Strutt and Samuel Need, who were hosiery manufacturers. In 1771 they built one of the world’s first factories, at Cromford. The new machines were powered by water, but Arkwright later made the crucial transition to steam power. By 1774 his firm employed six hundred workers, and he expanded aggressively, eventually setting up factories in Manchester, Matlock, Bath, and New Lanark in Scotland. Arkwright’s innovations were complemented by Hargreaves’s invention in 1764 of the spinning jenny, which was further developed by Samuel Crompton in 1779 into the “mule,” and later by Richard Roberts into the “self-acting mule.” The effects of these innovations were truly revolutionary: earlier in the century, it took 50,000 hours for hand spinners to spin one hundred pounds of cotton. Arkwright’s water frame could do it in 300 hours, and the self-acting mule in 135.

Along with the mechanization of spinning came the mechanization of weaving. An important first step was the invention of the flying shuttle by John Kay in 1733. Though it initially simply increased the productivity of hand weavers, its most enduring impact would be in opening the way to mechanized weaving. Building on the flying shuttle, Edmund Cartwright introduced the power loom in 1785, a first step in a series of innovations that would lead to machines replacing manual skills in weaving as they were also doing in spinning.

The English textile industry not only was the driving force behind the Industrial Revolution but also revolutionized the world economy. English exports, led by cotton textiles, doubled between 1780 and 1800. It was the growth in this sector that pulled ahead the whole economy. The combination of technological and organizational innovation provides the model for economic progress that transformed the economies of the world that became rich.

New people with new ideas were crucial to this transformation. Consider innovation in transportation. In England there were several waves of such innovations: first canals, then roads, and finally railways. In each of these waves the innovators were new men. Canals started to develop in England after 1770, and by 1810 they had linked up many of the most important manufacturing areas. As the Industrial Revolution unfolded, canals played an important role in reducing transportation costs for moving around the bulky new finished industrial goods, such as cotton textiles, and the inputs that went into them, particularly raw cotton and coal for the steam engines. Early innovators in building canals were men such as James Brindley, who was employed by the Duke of Bridgewater to build the Bridgewater Canal, which ended up linking the key industrial city of Manchester to the port of Liverpool. Born in rural Derbyshire, Brindley was a millwright by profession. His reputation for finding creative solutions to engineering problems came to the attention of the duke. He had no previous experience with transportation problems, which also was true of other great canal engineers such as Thomas Telford, who started life as a stonemason, or John Smeaton, an instrument maker and engineer.

Just as the great canal engineers had no previous connection to transportation, neither did the great road and railway engineers. John McAdam, who invented tarmac around 1816, was the second son of a minor aristocrat. The first steam train was built by Richard Trevithick in 1804. Trevithick’s father was involved in mining in Cornwall, and Richard entered the same business at an early age, becoming fascinated by steam engines used for pumping out the mines. More significant were the innovations of George Stephenson, the son of illiterate parents and the inventor of the famous train “The Rocket,” who began work as an engineman at a coal mine.

New men also drove the critical cotton textile industry. Some of the pioneers of this new industry were people who had previously been heavily involved in the production and trade of woolen cloths. John Foster, for example, employed seven hundred handloom weavers in the woolen industry at the time he switched to cotton and opened Black Dyke Mills in 1835. But men such as Foster were a minority. Only about one-fifth of the leading industrialists at this time had previously been involved in anything like manufacturing activities. This is not surprising. For one, the cotton industry developed in new towns in the north of England. Factories were a completely new way of organizing production. The woolen industry had been organized in a very different way, by “putting out” materials to individuals in their homes, who spun and wove on their own. Most of those in the woolen industry were therefore ill equipped to switch to cotton, as Foster did. Newcomers were needed to develop and use the new technologies. The rapid expansion of cotton decimated the wool industry—creative destruction in action.

Creative destruction redistributes not simply income and wealth, but also political power, as William Lee learned when he found the authorities so unreceptive to his invention because they feared its political consequences. As the industrial economy expanded in Manchester and Birmingham, the new factory owners and middle-class groups that emerged around them began to protest their disenfranchisement and the government policies opposed to their interests. Their prime candidate was the Corn Laws, which banned the import of “corn”—all grains and cereals, but principally wheat—if the price got too low, thus ensuring that the profits of large landowners were kept high. This policy was very good for big landowners who produced wheat, but bad for manufacturers, because they had to pay higher wages to compensate for the high price of bread.

With workers concentrated into new factories and industrial centers, it became easier to organize and riot. By the 1820s, the political exclusion of the new manufacturers and manufacturing centers was becoming untenable. On August 16, 1819, a meeting to protest the political system and the policies of the government was planned to be held in St. Peter’s Fields, Manchester. The organizer was Joseph Johnson, a local brush manufacturer and one of the founders of the radical newspaper the Manchester Observer. Other organizers included John Knight, a cotton manufacturer and reformer, and John Thacker Saxton, editor of the Manchester Observer. Sixty thousand protestors gathered, many holding banners such as “No Corn Laws,” “Universal Suffrage,” and “Vote by Ballot” (meaning voting should take place secretly, not openly, as it did in 1819). The authorities were very nervous about the meeting, and a force of six hundred cavalry of the Fifteenth Hussars had been assembled. As the speeches began, a local magistrate decided to issue a warrant for the arrest of the speakers. As police tried to enforce the warrant, they met with the opposition of the crowd, and fighting broke out. At this point the Hussars charged the crowd. Within a few chaotic minutes, eleven people were dead and probably six hundred wounded. The Manchester Observer called it the Peterloo Massacre.

But given the changes that had already taken place in economic and political institutions, long-run repression was not a solution in England. The Peterloo Massacre would remain an isolated incident. Following the riot, the political institutions in England gave way to the pressure, and the destabilizing threat of much wider social unrest, particularly after the 1830 revolution in France against Charles X, who had tried to restore the absolutism destroyed by the French Revolution of 1789. In 1832 the government passed the First Reform Act. It enfranchised Birmingham, Leeds, Manchester, and Sheffield, and broadened the base of voting so that manufacturers could be represented in Parliament. The consequent shift in political power moved policy in the direction favored by these newly represented interests; in 1846 they managed to get the hated Corn Laws repealed, demonstrating again that creative destruction meant a redistribution not just of income, but also of political power. And naturally, changes in the distribution of political power in time would lead to a further redistribution of income.

It was the inclusive nature of English institutions that allowed this process to take place. Those who suffered from and feared creative destruction were no longer able to stop it.


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