Industrial Revolution: Factors and Capitalist Economy Development
Industrial Revolution
We call the phenomenon of industrialization a revolution because its effects were more profound than any other economic change, except for the onset of the Agricultural Revolution. We could define it as a cumulative number of innovations in production and social relations, generating a new way to produce and distribute, with a capacity for growth that would revolutionize economic activity. For the first time in human history, humankind could produce increasing amounts of goods and services due to increased labor productivity. People gradually ceased to be primarily agricultural workers. Consequently, demographic patterns, asset distribution across economic sectors, the nature of family and home, etc., were transformed. The manufacturing and service sectors expanded faster than agriculture in the overall experience of economic development. The general process of capitalist industrialization should be understood as a single, global process.
Factors of the Industrial Revolution and Long-Term Capitalist Economy Development
Geophysical Factors
Two factors stand out: natural resource endowment and geopolitics. Regarding the first, the availability of certain mineral resources, especially coal and iron, was particularly important. These constituted fundamental inputs in the early stages of the Industrial Revolution. In England, the abundance of cheap coal was a determining factor, not only in the initial phase but also in the adopted industrialization process. We should not exaggerate the importance of these factors. Furthermore, as industrial development progressed and transportation improved, natural resource endowments ceased to be a decisive factor in the different income levels of countries. Geopolitically, proximity to industrial development centers was an important element in spurring industrial development for various reasons.
Population and Qualifications
The impact of the new society was also expressed in a change of demographic patterns. From high mortality and birth rates, which predominated in the pre-industrial population, there was a shift to a demographic model characterized by low rates of both variables. This transition from one model to another has been called the demographic transition. Finally, we must acknowledge the importance of workforce skills, credited as instrumental in the pace and characteristics of the Industrial Revolution, helping to explain the so-called climacteric crisis. Conversely, in Germany or Scandinavia, widespread literacy, a high level of skills, and collaboration between universities and businesses enabled a firmer and more suitable development process.
Agriculture
Agriculture should provide raw materials, food, surplus labor, and capital to invest. The income growth achieved by these changes should allow for increased consumption of manufactured goods and services. O’Brien argued that the influence of the primary sector in the Industrial Revolution was much smaller than previously believed. What accelerated industrial progress was the integration of local markets, achieved through improvements in transportation and modest investment in industry. The Industrial Revolution, then, would be essentially industrial, commercial, and urban. It must be borne in mind that in the early stages of industrial development, agriculture continued to be a key sector in most industrialized countries.
Institutions: The Role of the State
The development of the new economy required profound institutional changes that began centuries before the start of the industrial phenomenon. These changes were gradual amendments in social, intellectual, and institutional spheres. Its banner was complex liberalism in economics, starting from the premise that the best way to promote economic development and general welfare was to remove the elements limiting the absolute ownership of productive factors and their circulation. These ideas derived from the politics of a liberal economy that should not interfere with the economic mechanism, which was based on free competition and the pursuit of individual self-interest. However, in practice, many of these claims were not met. The inevitable imbalance in the economy became increasingly evident, as demonstrated in the continuing crises of various types. Competition was questioned with increasing corporate concentration and alliances between large companies. The labor movement gained power, pushing for the State to take on more social functions and regulate working conditions. States were largely protectionist, so free trade, one of the tenets of liberal ideology, was least adhered to. The monetary balance system also failed. In budgetary practice in the 1920s, some countries detached from liberal principles, implementing exchange controls, interfering in worker-employer relations, and supporting the internal market. Of all these authors, J.M. Keynes stands out. He called for state action and investment in a time when it became clear that the economic system was in crisis, especially after the 1929 crash. The change became widespread after the Second World War, establishing a new welfare state, fully embedded in economic life.
Technology
For most historians, technological progress is still considered one of the key drivers of the Industrial Revolution and the capitalist economy. Their role and the factors that determine them are complex. When analyzing the process of technological change in any historical period, it is important to note that there are three closely linked but conceptually distinct phenomena: invention, innovation, and dissemination. An invention, in technological terms, refers to a patentable mechanical, chemical, or electrical novelty, which, in itself, does not matter economically. Only when inserted into an economic process does it become an innovation and reach significance. Dissemination refers to the process by which an innovation spreads within an industry.
The Accumulation of Physical Capital
The role of capital in the Industrial Revolution is also controversial. Recent studies have focused on the speed with which it accumulated and changes in its composition (fixed and circulating capital). Regarding the first point, we now know that the investment rate increased slowly at first, but more rapidly in countries that industrialized later. As for the second, it seems clear that there was a shift from a situation where circulating capital predominated to the reverse. Where did the capital supply come from? From self-financing, the informal capital market, and formal markets.
The Company
The overall characteristics of the first companies can be summarized as follows: Inadequate fixed capital, linked to a simple and cheap workforce with limited skills. Activity was not continuous but varied according to changes in demand, seasonal variations, and even the habits of the agrarian economy. Turnover was very small. Therefore, there were no major management and accounting problems. They used the principle of accounting forms of merchants. Accounting remained a mere record of past transactions, without a fully developed single management accounting system. Property was connected to the address, and when it achieved a legal style, it took the form of a partnership. The market was very competitive, with a multiplicity of small companies.
Work
The emergence of the Industrial Revolution was accompanied by the development of wage labor. It must be kept in mind that working conditions at the beginning of industrialization were not attractive. The first workers came from the ranks of peasants with little or no land, small producers of home industries, and artisans. It is now accepted by most specialists that there was a decline in real wages and living conditions in the early stages of industrialization.
With respect to quality of life, we must note the migration to cities, sordid work in the murky and satanic mills – “dark satanic mills” as they were called – and a set of human costs in the beginnings of industrialization, which detract from the monetary compensation when analyzing the situation of employees in early industrial development. As economic development settled, things changed, and a significant improvement in living and working conditions was noticeable in developed countries. Economic growth brings not only economic, technological, or business organization change but also involves an alteration of the characteristics of labor, labor markets, and labor relations.
In this sense, labor relations were modified in parallel to the change occurring in their organization. A dynamic new manufacturing philosophy was brewing, resulting in the principle of Scientific Management (Taylorism) and its practical application in so-called Fordism.