- Increasing urbanization and the resulting increasing specialization of labor.
- The discovery of the Americas and the opening up of new markets and the transatlantic trade.
- Geography and economic geography: More specifically an increase in market potential.
- Slowly increasing living standards during the Renaissance period, which led to higher wages in Great Britain. As wages rose, thrifty capitalists started to invent more and more labor-saving technologies to economize on the input that is costly in relative terms (this is directed technological change).
- Cheap access to coal deposits, which were the crucial input for many industrial processes.
- Financial innovation: Modern government bond markets, capital markets (stock markets), and deposit banking developed in the pre-industrial era in Europe. This mobilized savings for economic development.
- Good institutions: The introduction of patents and more secure property rights. The emrgence of checks and balances on absolutist monarchs during the Age of Enligthenment.
- Political fragmentation: The political fragmentation of Europe, in contrast to China, and the emergence of nation states certainly led to some kind of "arms race" in Europe that not only encouraged colonization and the conquest of the world but might also have encouraged innovation.
- The invention of some General Purpose technologies, or macroinventions, like the spinning jenny, the steam engine, and coke smelting, which increased productivity manyfold and had a sizeable and long-lasting impact on economic growth. The transport revolution was of course of particular importance. Railroads led to higher market integration within countries and vastly reduced travel and transport costs and time. Innovations in sail ships and navigation and later on the steam made the North Atlantic trade possible.
- The so-called Industrious Revolution: With the emergence of the North Atlantic and colonial trade, consumers gained access to a large variety of new products that were previously unavailable in Northern Europe. This led to a large increase in working hours as consumers wanted to increase wage income so that they can participate in this modern consumer society that emerged.
- The Scientific Revolution: The pre-industrial era was also chaaracterized by a rise in education levels (literacy increased) as well as the emergence of modern scientific thinking. This is the so-called invention of the invention and modern problem-solving with the help of the scientific method and empricism.
There are quite a few people who adhere to what I call the "grand theory of the Industrial Revolution". According to this view it was one key ingredient that led to the Industrial Revolution: coal did it, or financial development did it, or the Scientific Revolution did it. All other factors were only secondary and only had a very minor role to play. I am quite sceptical about this view. It feels to me that that any theory of the Industrial Revolution must encompass a more broader view that takes many different factors into account. Modern economic growth took off as a result of a complex mix of factors that evolved together and were to some extent interdependent.
Any successful theory of the Industrial Revolution must thus explain why China did not industrialize during the Renaissance period. After all, the country at that time did already have a large internal domestic market, some large cities, as well as relatively advanced technologies, compared to Western Europe. China invented paper, and gun powder. The Chinese armada was the largest global fleet in the early 1500s and travelled all across South East Asia and the Indian Ocean and even reached the East Coast of Africa.
Ian Morris constructed an index of social development, comprising amongst others values for urbanization, military power, and per capita energy consumption. His index of social development shows that China had a higher score during the medieval and Renaissance period than the West, i.e. Europe, at that time. But some key ingredients for industrialization were apparently missing because Chinese growth never took off. The Chinese armada reached Africa, but China never decided to colonize any territories there or even in South-East Asia for that matter. World history could have looked very differently had the Chinese decided to colonize parts of South-East Asia or Africa. But they didn't. As a result of a regime change, subsequent emperors decided to look inward. Explorations and even trade came to a halt and the Great Armada started to rot away over the course of a couple of decades in Chinese ports. It looks like political centralization might have been an important obstacle to economic development. China did not face any mahor rivals in her respective sphere of influence unlike many European powers. The literal scramble for colonies, first in the Americas, then in Africa and South-East Asia, was a direct result of intra-national competition between competing powers in Europe. The result was not only a kind of arms race, but also major innovations and breakthroughs in technology as well as the emergence of a global economy and international trade. It was thus the Europeans who would end up dominating South-East Asia a couple of centuries after the Chinese armada was travelling across the Indian Ocean. in 1500, European domination was far from assured as the social development index was higher in China than in Western Europe at that time. Europe would only end up taking the lead in the 18th century.
Going further back in history, we can see that over the course of several millenia that there were spectacular reversal of fortunes as Great Empires expanded and collapsed, the Roman empire being arguably the most important one in terms of its impact on Western culture and development. The Renaissance period was precisely an attempt to revive some of the grandness that the Roman Empire was projecting for such a long time. In terms of social development, Ian Morris claims that Europe did not reach the same score like the Roman Empire until the 18th century. This effectively means that there were more than 1600 years where social development did not really make any progress. There were many ups and downs along the way though. Roman superiority, if you will, is not very surprising. The roman Empire covered a territory that was larger than the current European Union. Todays Scandinavia, Ireland, and Scotland and certain parts of Eastern Europe were not part of the empire, but included the entire coastal regions of North Africa, Turkey and the Middle East.
The relative peace and stability of the Empire, the Pax Romana, also led to the expansion of trade. While it is true that the Romans were never really at peace, most wars were fought at the periphery against barbaric tribes or smaller empires at the edges of the Roman sphere, a large part of the Roman empire enjoyed decades or even centuries of stability (compared to what was before and what came thereafter). Roman trade expanded throughout the empire, mostly maritime trade. However, the Romans also built an extensive network of streets, initially designed for the movements of troops. However, it also led to th eemrgence of trade routes and an extensive city network that emerged as a result of Roman occupation.
Greenland ice caps show us that world lead production peaked in the century after Christ, which corresponds roughly with the greatest extension of the Roman Empire (see below the map of the Roman Empire under Marcus Aurelius in the 2nd century). After the collapse of the Empire, the level of lead production was not reached again until the late 16th century. From the number of ship wrecks we can deduce that trade in the Mediterranean was very extensive. Rome, a city of almost one million inhabitants, could only survive because of the extensive trade network that emerged during Roman occupation. In fact, a large part of the grain was imported from Northern Africa, Carthage (nowadays Tunisia) and Egypt, back then. Peter Temin's book "The Roman market economy" forcefully makes the case that the Roman Empire did indeed have a market economy where prices were dictated by the laws of supply and demand. Living standards in Acient Rome were arguably higher than in the subsequent one and a half millenia because of the extensive trade that emerged between Roman provinces, indeed Rome's occupied territories produced according to their comparative advantage, as well as an institutional setup that favored stability and prosperity. Institutional economists like Douglas North have rightly emphasized the importance of institutions, the existence of property rights and the rule of law, a state monopoly on violence, a democratic setting, etc. as the key fundamentals that are required for prosperity and economic growth.
Property rights were well defined, Roman law was introduced in all acquired territories, and the Pax Romana provided the peace and stability under which trade and prosperity could florish. Ian Morris claims that the level of social development achieved by the Roman Empire (roughly the 1st and 2nd century after Christ) was not reached again by Western Europe, or any other civilization for that matter, until the late 16th century.
The question why the Industrial Revolution did not occur in Ancient Rome despite the high level of economic and social development is an interesting one, but might have to be answered in more detail in another blogpost. Suffice it to say that certain key ingredients simply must have been missing. The Roman Empire certainly did possess a critical mass in terms of the size of the market as well as a sufficiently high rate of urbanization, especially in the core. Roman provinces were sufficiently integrated via the Mediterranean Sea as documented by Temin who examined wheat prices throughout the Empire. Roman technologies were sufficiently advanced to construct cities and infrastructure that would exceed in size and scope most of the achievements that would come in the subsequent 1000 years after its collapse. The Romans even used coal.
However, some of the ingredients for necessary for an Industrial Revolution were missing. The invention of the printing press certainly was a game changer as it allowed for a much more rapid diffusion of science and knowledge. Some of the macroinventions, the steam engine and railroads, required scientific knowledge that simply was not available during Roman times. Some scientific breakthroughs during the Renaissance period, the Scientific Revolution as well as the spread of literacy, were certainly key prerequisites for industrialization.
There were a multitude of factors that ultimately led to the demise of the Roman Empire. Cultural decay, barbaric invasions during the time of mass migration and maybe even climate change. Ultimately, the Roman Empire probably also suffered from territorial overstretch. There were just too many borders to defend, starting from Northern England against the Celtics to Germany against Teutonic tribes. Finally, climate change as well as plagues might have also played a role in the collapse of Rome.
The fact that social development in the Middle Ages was lower than during the time of the Roman Empire is ultimately not very surprising. While there were certainly also some periods of peace and stability, the Middle Ages were characterized more or less by constant warfare. The plague devastated certain parts of Europe and killed off as much as 50% of the population in certain regions. The decline in population, the disintegration of market, the collapse of trade also led to a decline in living standards. The city of Rome, having maybe about a million inhabitants under Augustus, was only able to sustain itself because Romans could tap into food markets all over the Mediterranean, especially grain coming from Northern Africa. As soon as trade collapsed and those markets dried up Rome started to decline as well.
PS: Below some pictures of the Roman colosseum in Pula in the region of Istria (Northern part of Croatia) where I spent my summer vacation. The city was a large Roman settlement in the province of Illyricum (along the east coast of the Adriatic Sea). Pula was a sizeable city of about 30.000 inhabitants at its zenith. The Roman colosseum is one of the largest and best preserved amphitheatres in the world.