Mokyr – The Open Economy
Economies open to the world more dynamic and prone to growth, but does foreign trade cause the IR (Inikori 2002/Cuenca 2004), or does technological change/prod. growth lead to increased trade?
Significant impact of trade on IR:
Trade prevented prices of goods of fast tech. progress from falling too rapidly → Harley 2004 suggests self-sufficiency costs Britain 6% of GDP (minimalist estimate)
Without trade, still IR because decisions to innovate made by individual entrepreneurs not by the industry (assuming competitiveness) to reach min. costs → however, profits exhausted earlier → smaller industry size → open economy contributes
No trade → manufacturing goods price fall even more relative to agricultural goods → slow down growth in a similar fashion to Malthusian crisis
However in an open economy some benefits of tech. progress transferred to foreign consumers in the form of lower prices!
OTOH, increased foreign competition stimulates incentive to innovate!
Trade leads to exposure effects → indeed some historians suggest the IR the result of efforts of others, see Britain as a 'derivative late developer' → however, exaggerated response to 'Eurocentricity' → many breakthroughs original in Europe not China e.g. steam engine
Social and economic changes in trade → argue trade created middle class e.g. merchants, shipbuilders, insurance brokers, financial agents who demanded property rights → however why did Britain's middle class have a greater impact than n Europe? Can also argue commercial interests → mercantile, rent-seeking, dead end economy was just as likely
Also Allen (2009) suggests international trade → raised British wages → stimulates labour saving technological change
Did mercantilism mindset in Britain inspire industrialisation?
Govt. made big difference to foreign trade, policy of maintaining powerful navy to forcefully protect/expand commercial opportunities, support long-distance trade WHILE maintaining protectionist policies on behalf of domestic rent-seeking lobbies.
Growth in imports in 18th and 19th C masks fact much of British industrial output was import substitution i.e. goods produced cheaper/better outside kept out by tariffs and trade barriers
Paul Bairoch (1989) argued protectionism guaranteed home market for innovative entrepreneurs. However it could be argued that if the country allowed imports of raw materials such as duty-free cotton, AND prohibited importation of cotton cloth, manufacturers produce more of a good that is susceptible to technological advances and learning-by-doing → more innovation.
Britain was more efficient in cotton textiles vs other economies → increase in imports of raw cotton an EFFECT NOT CAUSE of developments in cotton technology.
However, protection → domestic markets perhaps less competitive → reduce incentive to innovate and keeps out ideas e.g. observing hand made Indian fabrics led to idea of spinning fine cotton yarn
Argue home market still of central importance to IR –> British pop. Increased after 1750 → despite lack of GDP/capita growth, population growth and access to cash defined expanding market. Transportation system well developed → multiplied gains from innovation and prevents tech. Backward 'niches'.
Integrated markets → growing product and input standardisation
In this period foreign trade expanded faster than total product, from £5.8m and £4.4m imports and exports to £12.7m and £9.9m in 1772-74 (although not completely accurate figures!) → international trade helped cushion the decline in relative prices due to a rightwards shift in supply.
Argue increased trade the result of organisation and technology of long-distance trade → increased Atlantic trade with colonies → this itself the result of pro-trade policy which focused on ruthless competition with Britain's main rivals
Role of British Empire upon the British economy: