The Impact of Technological Progress on Industrial Growth

The Impact of Science on Production

• Saves resources per unit produced: Bob Allen maintains that the Industrial Revolution occurred in Britain because of uniquely high wages and cheap energy. The new technology bias is evident in textile manufacturing, though technological progress seems neutral in the long run.
• Eases the constraints of nature: The limiting factor in agriculture is nitrogen. While bacteria fix nitrogen slowly, the Haber-Bosch process introduced an industrial method to produce ammonia and nitrates in the early 20th century, forming the basis for spectacular yield increases.
• Improves quality of products: Quality improvement is difficult to measure, but ignoring it biases real income estimates downward. For example, the price of light has fallen by 3 to 4 percent, and modern computing has reduced calculation costs by approximately 7 × 10¹³ times compared to manual methods.
• Introduces new products and production processes: Innovations like the internal combustion motor, the electrical motor (pioneered by Hans Christian Ørsted), the telephone, and the camera defined the era. The 19th century provided the foundation for the 20th century, though the welfare effect of these new products remains an under-researched area.
• Widens the resource base for industrial use: New steelmaking processes, such as the Gilchrist-Thomas process, allowed for the exploitation of phosphorus-rich iron ore. Similarly, cheap wood-based paper transformed publishing, and modern energy sources like nuclear, wind, and wave power continue to expand the resource base.

Why Britain Lost Its Industrial Leadership

• Low domestic investments in human and physical capital.
• Industrial relations hindered technology absorption, leading to low total factor productivity growth.
• Relatively high interest rates hampered manufacturing, despite the service sector's success in the late 19th century.
• Financial institutions may have neglected profit opportunities in emerging technologies.

Conditions for Catch-Up Growth

Poor countries can grow faster than rich ones for three distinct reasons:

1. Imitation: The possibility to borrow existing best-practice technology from high-tech economies.
2. Structural Change: The transfer of labor from low-productivity sectors to high-productivity sectors.
3. Capital Accumulation: Low initial capital-to-labor ratios facilitate higher initial investments and growth rates.

The Advantage of Backwardness

:•Technological gap makes poor countries grow faster than richer if they adopt new technologies.•The institutional conditions for absorption and use of new technologies must be present,•which historically has been linked to openness to trade and foreign investment,•and high scores on educational attainment and political and legal order.