WHAT IS INDUSTRIALISATION?

ITS RELEVANCE FOR ECON 120:

INDUSTRIALISATION PROVIDES THE CONTEXT FOR THE RISE OF

MODERN BUSINESS IN HISTORICAL PERSPECTIVE:

THE KEY CONCEPT:

‘INDUSTRIAL REVOLUTION’:-

ROOTED IN BRITISH EXPERIENCE AS THE FIRST INDUSTRIALISER

THE BROAD DEFINITION:-

KEY COMPONENTS

A) TECHNOLOGICAL INNOVATION:-
(i) SUBSTITUTION OF MACHINES FOR HUMAN SKILL
(ii) SUBSTITUTION OF INANIMATE POWER FOR HUMAN ND
ANIMAL FORCE

NB) THE FLEXIBILITY OF THE TERM- 1st / 2nd / 3rd REVOLUTIONS:-

IN TERMS OF TECHNOLOGY AND TIMING :-

1st = LATE C18 EARLY C19 – STEAM

2nd = 1890-1920 – ELECTRICITY

3rd = 1960 – PRESENT – AUTOMATION/IT

OUR CONCERN TODAY : THE FIIRST INDUSTRIAL REVOLUTION

NOT ONLY TECHNOLOGY, BUT ALSO:-

B) STRUCTURAL CHANGE

TRANSITION FROM AN AGRARIAN, HANDICRAFT ECONOMY TO ONE

DOMINATED BY INDUSTRY AND MACHINE MANUFACURE

NEXT WEEKS TUTORIAL : THIS IS ‘ECONOMIC DEVELOPMENT’

BUT ‘ECONOMIC DEVELOPMENT’ WAS ON GOING

THE FIRST INDUSTIAL REVOLUTION EMBRACED NOT ONLY

TECHNOLOGICAL AND INDUSTRIAL CHANGE, BUT ALSO THE RISE OF THE
SERVICE SECTOR

IN THE BRITISH CASE:

THE MOBILISATION OF CAPITAL:-

a) BANKS

b) CAPITAL MARKET/STOCK EXCHANGES

c) TRANSPORT INFRASTRUCTURE

d) FORMAL EDUCATION

C) THE PRODUCTIVE UNIT:

DOMESTIC SYSTEM SUPERSEDED BY THE FACTORY SYSTEM

a) THE DOMESTIC, OR ‘PUTTIG OUT’ SYSTEM

(i) SMALL SCALE PRODUCTION
(ii) LABOUR INTENSIVE
(iii) LIMITED POWERS OF CONTROL OF WORKFORCE BY
EMPLOYER

b) THE FACTORY SYSTEM

(i) THE VEHICLE FOR MECHANISATION GIVING ACCESS TO SCALE
ECONOMICS
(ii) CAPITAL INTENSIVE
(iii) FACTORY DISCIPLINE LEADING TO INCREASED LABOUR
PRODUCTIVITY (NB. EMBEZZLEMENT).

D) THE STRUCTURE OF OWNERSHIP AND CONTROL

EARLY FACTORIES WERE OPERATED IN THE CONTEXT OF ‘FAMILY

CAPITALISATION’ :- THE FAMILY FIRM, OR PARTNERSHIP

(i) FAMILY CAPITAISM

IN BRITAIN ‘OWNERS MANAGED AND MANAGERS OWNED’ = THE

DOMINANT FORM OF ENTERPRISE UNTIL WELL AFTER 1900.
 REASONS

a) LIMITED CAPITAL REQUIREMENTS OF EARLY

INDUSTRIALISATION- DESPITE TECHNOLOGICAL CHANGE

b) EXTERNALISATION : NB COTTON TEXTILES

c) NATURE OF DEMAND : LIMITED ACCESS TO SCALE

ECONOMICS BOTH HORIZONTAL AND VERTICAL

ii) CORPORATE CAPITALISM

CHARACTERISED BY
a) SALARIED MANAGERS DIFFERENIATED BY FUNCTION

b) SHAREHOLDERS

CORPORATE CAPITALISM RARE IN BRITISH MANUFACTURINS BEFORE 1900

THE EXCEPTION

RAILWAY ENTERPRISE FROM THE 1830s REASONS:-

a) HUGE CAPITAL REQUIREMENTS NEED TO RAISE FUNDS ON OPEN

CAPITAL MARKET

b) COMPLEXITY OF THE MANAGERIAL FUNCTION; HENCE THE NEED

FOR ‘SPECIALISTS’

a) + b) BEYOND THE RESOURCES OF FAMILY FIRMS

E) INFLUENCES ON THE DEMAND SIDE

EMPHASIS SO FAR ON SUPPLY-SIDE INNOVATIONS

THE DEMAND SIDE

INDUSTRIALISATION + ECONOMIC DEVELOPMENT DID NOT TAKE PLACE IN

A VACUUM.

BOTH WERE A SUPPLY-SIDE RESPONSE

TO:
a) INCREASED DEMAND
b) INCREASED DEMAND SUSTAINED IN THE LONG-TERM BY RISING
PURCHASING POWER/REAL INCOMES OF CONSUMERS
THE SOURCES OF DEMAND

a) AGRICULTURAL INNOVATION = LOWER FOOD PRICES  HIGHER

REAL INCOMES TO SPEND ON MANUFACTURES

b) AGRICULTURAL INNOVATION =  LABOUR PRODUCTIVITY THEREBY

RELEASING LABOUR FOR FACTORY/URBAN EMPLOYMENT

c) RURAL DEMAND COMPLETED BY RICHER URBAN CONSUMERS

d) DEMAND FOR MANUFACTURERS STIULATED BY FALLIN PRICES

NEXT WEEK’S TUTORIAL

(1) INDUSTRIALISATION (AGRICULTURE  INDUSTRY)

(2) ECONOMIC DEVELOPMENT (STRUCTURAL CHANGE)

ECONOMIC GROWTH

‘A SUSTAINED INCREASE IN REAL PER CAPITAL INCOMES’ :-

THE PRODUCT OF (1) AND (2)