Growth in a long-term perspective

The 2009 Ellen McArthur lectures by Professor Nick Crafts of Warwick university – now available to watch as video podcasts – on 250 years of economic growth look set to be fascinating. I have so far watched the first one in which he examines the Industrial Revolution from the perspective of its past and future. Posing the discussion in this way yields some interesting insights and raises important questions.

From the perspective of earlier history the Industrial Revolution (classically dated from 1780-1860) represented a remarkable transformation. From an almost static economy Britain emerged one with sustained economic growth and rising productivity. It was the start of what Simon Kuznets, one of the greatest economists of the twentieth century, called modern economic growth. It was also an era of remarkable technological inventions and innovations including steam power and coke smelting.

However, from the perspective of the future the growth experienced at that time was relatively low – Crafts estimated GDP grew by 0.5% a year while productivity growth was also slow. He puts forward several explanations for this slowness including the fact that growth was uneven (it was concentrated in certain sectors such as cotton textiles and transport whereas others, such as domestic service, were untouched); there was a big lag between invention, innovation and diffusion; the overall size of the market was small; and capital markets were unsophisticated. Crafts argues that the impact of steam power on productivity during Britain’s Industrial Revolution was much less than the impact of information technology on American productivity more recently (despite Robert Solow’s famous “productivity paradox” ).

The second lecture evidently discusses Britain’s relative economic decline.