Chapter 7 Flashcards
(34 cards)
Why was this modern economic growth?
Living standards are increasing whilst working hours decrease. Europeans are working less (Swedes and Danes work much less hours by 1/2% a year for 40 years)
More emphasis was placed on capital than on labour however productivity growth
Living standards increase whilst working hours
Why did the rest of Europe grow?
- They grew from the example of Britain becoming richer, they grew because they realised that becoming richer was possible
- Other countries had the economic potential to catch up to Britain (aka “catch up potential”. The more backward the country, the more and the faster they can grow,
*The correct institutions, finance and human capital (social capabilities) are to needed for this to work (The countries were not extractive states)
- Citizens wanted standards of living common to those living in Britain
- Some wanted to stop Britain’s economic success and overtake as the leader nation
Define endodenous institutions:
Institutions that developed in the historical or political context, which are asopted from outside
Define technology transfer:
Transfer of technology
Define subsitutions for pre-requisites:
Subsititue the certain thing that enabled growth for another country. Still achieveing growth even though they don’t have the pre-conditions of industrial powers and there is the potential to subsitute this good for something else
What did Europe not adopt, that Britiain had done?
Eliminating family farming early within the group period
Heavy emphassis on free trade
Massive oversea lending
Textiles as the most important industry
Significantly decrease the agricultural employment sector
What happened between 1870-1913 to economic growth?
economic growth becomes pervasive (the norm) in much of Europe
Many of the more developed countries in Europe doubled their levels of income per head in these 44 years. Not a fast rate of growth post war but someone might see their standard of living doubling is remarkable.
- Switzerland growth: 1.5% increase
- German growth: 1.6% increase
- French growth: 1.5% increase
Backwards Eastern and Southern Europe nations
- Russia: 0.9%
- Italy: 1.3%
- Spain: 1.2%
- Real GDP per person in $, 1990 GK PPP
Annual change in capital per worker 1870-1913:
- Denmark: 2.3%
- France: 1.2%
- Germany: 1.6%
- Italy: 2.1%
- Netherlands: 1.9%
- Spain: 1.3%
- Sweden: 3.6%
- UK: 1% (already high)
Annual % change in TFP 1870-1913:
Modern economic growth because there is a better use of factors of production
- Denmark: 1.3%
- France: 1.2%
- Germany: 1.3%
- Italy: 0.4%
- Netherlands: 0.5% (Already high)
- Spain: 1.1%
- Sweden: 1.5%
- UK: 0.5% (already high)
This delivers lower hours and higher pay because firms are more efficient. This is due to more capital just generally becoming more efficient.
Catch up model
- Leader nation: most capital, most modern capital, highest productivity (In Europe, it is Britain and after WW2, it is the US)
- Followers: worse capital, lower productivity (E.g. India)
- The more backward you are, the more you can grow, and the faster you can grow. More “catch up potential” means they can grow very fast. Greater catchup limits the possibility of larger leaps
- Needs the right institutions, finance, and human capital (“social capabilities”) to work
Agricultural employment (%) in 1913:
- UK: Below 20%
- Above 20%: Germany, Netherlands
- Above 40%: France
- Above 60%: Italy, Spain, Austria Hungry
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- Above 60%: Italy, Spain, Austria Hungry
Rise in agricultural productivity between 1880-1910
UK very low growth in productivity, as they were very high already. High growth in Austria Hungary but they were still low in terms in of productivity in 1910
In 1910, the Netherlands was half as productive as the UK
Why is agricultural productivity important?
- As a matter of simple arithmetic, a lot of people in agriculture (farm productivity matters), combined with low agricultural productivity, means a country cannot converge at whole economy level
- Lots of people achieving little on the farm means the nation stays poor
- Europe had rising productivity created a surplus that can be used for investment and benefiting people on the land
Where do displaced workers go?
Industry
Services
Industry employment in Europe (1870-1913)
Rise everywhere but spain (1870: 19% employment, 1913:15%)
Some convergence with Britain but not total as shown in the graph. None catch up and countries like Austria Hungary are still far away
Britain: 1870-1913: Doesn’t meaningfully expand.
Germany has an expansion of a third
Services employment (1870-1913):
Services
Netherlands converges but everyone else fails to converge
UK figure is still rising in terms of services but not massively in industry
Italy and Austria Hungary only see small changes and therefore they are not dramatically growing
Why did Northern Europe do better
- Previously argued Protestantism was better associated with growth and that Protestants were financially capable but this is no longer believed.
Geography
- Northern Europe has good coal deposits.
- Northern Europe has a good climate for mechanised farming (wheat, vines are impossible to mechanise and have to be hand cut).
Good decisions
- Northern Europe had better institutions. (More effective court systems, fewer restrictions on workers, better railways,)
- Northern Europe had higher human capital. (more money dedicated to education)
Subsitutions for pre-requisites: Germany
There is more than one way to achieve something. If you don’t have a prerequisite, then you can find a substitute
Germany (& US) ‘infant industry protection’.
- Tariffs to keep cheap and good British goods out, so people would consume their inferior expensive goods
- gave domestic manufacturers time to improve and become competitive. They became big industrial powers based on this approach
Russia before 1914
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Subsitution for pre-requisites: Italy
There is more than one way to achieve something. If you don’t have a prerequisite, then you can find a substitute
Italy: Underdeveloped capital markets
- Italy had under-developed capital markets, with little opportunity for firms to raise capital by selling shares. Compared to Britain, they were hopeless. Hard for firms to grow, as firm need to sell shares and get equity capital.
- Italian entrepreneurs developed investment banks to channel savings into risky investment.
- British didn’t have this as they would use savings for secure lending in the short term.
- This is an example of the private sector automatically substituting for a pre-requisite, becuase it is profitable
- They take deposits as Italians don’t buy shares so banks invest in a lot of companies to share risks and therefore pay depositors at good rates and make money as the middleman (banks).
Subsitution for pre-requisites: Russia
There is more than one way to achieve something. If you don’t have a prerequisite, then you can find a substitute
- Huge catchup potential
- It was short of human capital, physical capital, entrepreneurship and knowledge about opportunities and technologies.
- The state therefore took a much greater role in development – as latecomers such as Korea would do in the late 20th century. The found companies, runs demonstration markets in order to inspire the market.
What are the reaosns for Swededns wage growth?
- Growth of industry, following escape from Malthusian trap
- Integrated labour markets, with lots of migration within Sweden.
- Means that there are no areas left behind: when there are better prospects elsewhere, people move until wages equalise. There isn’t a two part economy where there is the successful stockhold and the rest. The movement means people move to the successful stockhold and there is an equalisation of wages.
What was the skills spread in Sweden in 1910?
Regionally equal
Wage gaps between rural and urban were less than 05 kronor
Why did Swededn had an equal society?
- Between 1851 and 1900, over 840,000 Swedes migrated to the US, one of the highest emigration rates of any country in this era (O’Rourke and Williamson 1999). This is a huge safety valve.
- Places within Sweden with more emigration experienced more rapid growth of wages for unskilled workers (Enflo, Lundh, and Prado 2014, Karadja and Prawitz 2019). Too many workers therefore rich workers who can afford the voyage to US leave. This leads to a change in local labour markets. Decrease in supply so increase in wages due to increasing scarcity. Unskilled workers, often young and strong who remained in Sweden.
- Prospect of migration gives you an option. Manufacturing firms are using a lot of capital. There is the potential to move to the US or factories in the urban area changes the labour market.
Britain in 1913
- Still the richest country in Europe (Not been caught up and overtaken)
- Still the most advanced economy in terms of agriculture/industry/services mix
- Much better at agriculture and services (Far fewer people in agriculture and much better at services and agriculture )
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