The Roots of the Industrial Revolution: Political Institutions or (Socially Embedded) Know-How?

In this paper we reassess the nature and causes of growth (measured through urbanization as well as nineteenth-century per capita income) in Europe from around 1200 to 1900. Employing a comprehensive dataset for the European continent that includes biogeographic features and urbanization data (1200-1800), per capita income data in the second half of the 19th century, location of proto-industrial textile and metallurgic centers and political institutions, we show, in the first place, that the process of economic take-off (and of a growing economic divergence across Europe) was caused by the early emergence and growth of cities and urban clusters in an European north-south corridor that broadly runs from southern England to northern Italy. In contrast to previous findings in the institutionalist literature, we show, in the second place, that the fortunes of parliamentary institutions in early modern Europe played a small part in the success of the industrial revolution. Finally, we claim that growth happened endogenously, taking place in those territories that had a strong proto-industrial base, often regardless of the absence of executive constraints, and easy access to energy resources. ∗Department of Politics, Princeton University. [email protected] †Department of Politics & WWS, Princeton University. [email protected] 1 Two broad features define the economic history of Europe in the last millennium: one, sustained growth, slowly at first and then at an accelerating rate after 1750; two, increasing income divergence within Europe. According to admittedly crude estimates, GDP per capita ranged from a maximum of $468 to a minimum of $400 (in 1990 International Geary-Khamis dollars) in Europe around the year 1,000 (Maddison 2003). Half a millennium later, that range had widened from a minimum of $433 in Albania to a maximum of $1,100 in Italy.1 By 1850, with the industrial revolution in full swing in England, the maximum European per capita income had experienced a five-fold increase to almost $2,500. Meanwhile, in the poorest areas of Europe, per capita incomes had not experienced any significant growth. There is no dearth of theories to explain how parts of Europe managed to escape from a pre-industrial, Malthusian world through a long period of sustained growth. Endogenous growth theories see economic development as the outcome of a self-generating process of learning-by-doing and of technological innovation, arguably shaped by geographical factors (Sachs and Warner 1997) and/or population size (Kremer 1993). Most of the current literature, however, traces growth back to a particular configuration of institutions ranging from the presence of formal structures such as constitutional checks and balances and constraints on the executive (North and Weingast 1989) to social norms of cooperation and culture (North 1990, Putnam 1993, Tabellini 2010). Both strands of the literature are beset by important theoretical and empirical gaps. Institutionalists do not endogenize the emergence of institutions, mostly tracing them back to some unidentified critical historical juncture.2 On the other hand, endogenous growth models do not specify with much precision the mechanisms through which economic growth takes place (in some places but not in others). Empirically, there are similar deficiencies. Most historical work on modern growth has been conducted by economic historians who have emphasized the analysis of a particular case or the comparison of a few cases with Britain normally included as a benchmark (Pomeranz 2001, Voigtländer and Voth 2006, Clark 2008). Econometric studies, generally based on Urbanization rates, which have regularly employed in the literature to proxy for economic development tell a similar story. Chanda and Putterman (2007) estimate GDP per capita as a function of urbanization for a crosscountry sample in 1500. Employing their point estimates and applying them to urbanization rates, the highest per capita income in Europe was around $600 in 1000 and around $780 in 1300. Two partial exceptions are Engerman and Sokoloff (2002) and Stasavage (2003), who related specific institutional frameworks to the social coalition in power.