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Modern Economic Growth: Rate, Structure and Spread

Author(s):Kuznets, Simon
Reviewer(s):Easterlin, Richard A.

Project 2001: Significant Works in Economic History

Simon Kuznets, Modern Economic Growth: Rate, Structure and Spread. New Haven and London: Yale University Press, 1966. xvii + 529 pp.

Review Essay by Richard A. Easterlin, Department of Economics, University of Southern California.

A Vision Become Reality

Modern Economic Growth: Rate, Structure, and Spread is the fulfillment of a vision that redefined the study of economic growth. With the emergence after World War II of the newly independent nations of the Third World, the problem of promoting economic growth came to the fore. Economic historians responded to this challenge by advocating industrialization, basing their arguments on the historical experience of the handful of countries that accounted for the bulk of their research — the United Kingdom, United States, Germany, France, Russia and Japan. Economists characteristically turned to theory, arguing the need for higher savings rates, as demonstrated by the Harrod-Domar re-model of short term Keynesian theory. Some social scientists, impressed by the cultural disparities between East and West, questioned whether Third World economic development was even a realistic possibility.


It was in this context that in 1948 Simon Kuznets developed a proposal for the comparative study of the economic growth of nations (Kuznets 1949). This proposal was first presented to the National Bureau of Economic Research (NBER) as a new initiative in its empirical studies, but was turned down by Arthur F. Burns on the grounds that it would divert the Bureau from its primary focus on the United States. Fortunately the private nonprofit Social Science Research Council (SSRC) was more farseeing, and responded by establishing a Committee on Economic Growth, with Kuznets as chairman. This committee succeeded in getting substantial funding from the Ford Foundation, and over the next two decades was the most active committee of the SSRC.

Although comparative study had been advocated as early as the mid-nineteenth century by the German Historical School (Ashley 1900), with whose work Kuznets was familiar, it had gone nowhere, largely because of failure to establish a systematic method of study. What was distinctive in Kuznets’ vision was the idea that a quantitative framework derived chiefly from the national income accounts would provide the foundation for comparative study. Kuznets thus built on his two decades of pioneering NBER work on the measurement of national income to supply the basic analytical structure missing from the approach of the German Historical School.


Prior to World War II empirical research on economic development had been fragmentary, the best known being that of Colin Clark (1940), whose results stressed the primary-secondary-tertiary shift in industrial structure accompanying economic growth. Kuznets’ experience in developing alternative approaches to the measurement of national income — by type of product, industry, factor share, and size of income — and his study of demographers’ work on population and labor force and their components of change led to a much more comprehensive undertaking. The basic organization of Kuznets’ Modern Economic Growth parallels the theoretical structuring of economic study in Alfred Marshall’s Principles of Economics and harkens back to John Stuart Mill’s Principles of Political Economy — production, allocation of resources, income distribution, consumption, and external relations. This can be appreciated from scrutinizing the succession of tables in the book (pp. xiii-xvii), which, in Kuznets’ writing, were always the skeleton on which the rest of the book was hung. Kuznets’ study of economic growth thus reflects the disciplinary categories of economics, and contrasts with the standard organization of economic history texts even to the present time, which typically shortchange topics such as consumption, income distribution, and population. Chapter 2 focuses on population, total and per capita output, inputs of labor and capital, and the output-input relationship; chapter 3 on the allocation of resources by both broad industrial sector and detailed industry; chapter 4 on the distribution of income by factor shares and size; chapter 5 on consumption or, more generally, national product by end use; and chapter 6 on external relations — the flows among countries of knowledge, goods, persons, and capital. In these chapters Kuznets generalizes about the rate and structure of economic growth from the available time series data on national income, labor force, and population for up to eighteen developed countries. Many of the long-term national income estimates for countries other than the United States were made by scholars who were working under Kuznets’ guidance and were often funded in part by the Ford Foundation via the SSRC Committee on Economic Growth.

The last two chapters of Modern Economic Growth bring in the less developed countries. At the time that Kuznets wrote there were few time series available for these countries, so the focus is chiefly on differences between more and less developed nations in (to the extent data permitted) production, resource allocation, consumption, and external relations. There is also some arithmetical conjecture about the historical spread of economic growth and its implications for international differences in living levels. Throughout the volume the data analysis is interspersed with theoretical speculation, but the primary emphasis is on quantitative findings about the nature of economic growth. In this, Kuznets’ work is a league apart from the sweeping theoretical generalizations of his contemporaries in economics, and is squarely in the empirical tradition of his teacher and mentor, Wesley C. Mitchell.


Among the most important findings brought out by the book is the substantial degree of uniformity in the nature of modern economic growth in countries varying as widely in institutional structure and culture as the United Kingdom, USSR, and Japan. Contrary to those who stress the importance — positive or negative — of indigenous conditions, Kuznets presents evidence of the unusually high rates of output growth and similar shifts in resource allocation common to all countries undergoing economic development. While some economic historians stress the continuity of history and question the notion of revolutionary change, Kuznets sees modern economic growth as a new economic epoch, pointing to the unprecedented high rates of growth and shifts in resource allocation as evidence. The paramount feature distinguishing this epoch is the application of scientific knowledge to problems of economic production and the development of a science-based technology. Kuznets also recognizes the existence of variability among countries and the importance of knowing about the history and culture of each. But his data for the first time demonstrate conclusively what has now come to be widely accepted — that in its broad contours the economic system of all countries undergoing modern economic growth changes in a dramatic and quite similar way.

This similarity he took to derive largely from the replacement of premodern by modern technology across the broad industrial spectrum of the commodity-producing economy — agriculture, industry, transportation, and distribution. His work made clear the high pre-World War I growth rates in Australia, New Zealand, Canada, and Denmark, based on modernization of agriculture, food processing, transportation, and distribution, and severely undercut economic historians’ stress on the necessity of industrialization in the British mold. The tension in the discipline’s thinking created by Kuznets’ results is demonstrated by the first chapter in the 1965 Cambridge Economic History’s Industrial Revolutions and After. While this chapter presents data demonstrating the remarkable pre-World War I productivity growth in the countries just mentioned, they are dismissed as still having (contrary to the evidence) “pre-industrial levels of economic organization,” or their experience is termed “paradoxical.” Only in time would economic historians recognize that modern economic growth need not be in the British image. While Kuznets stressed uniformity in the development experience due to the application of modern technology to the economy generally, his findings demonstrated that economic growth did not necessarily require industrialization in the British heavy-industry style.

A major thrust of Modern Economic Growth is that massive structural changes in the economy and society are a necessary and integral part of the process of economic growth. This is because the economy-wide adoption of modern technology, in the context of similarly-structured human wants in all societies, engenders common patterns of change. These encompass the shift from agriculture to industry and services, a replacement in many industries of small-scale by large-scale productive units, and related shifts from personal enterprise to impersonal organization of economic firms, and from blue-collar to white-collar occupations. Associated with these changes is a redistribution of the primary locus of economic activity from countryside to city, and thus in the geographic distribution of the population. Such changes, Kuznets emphasizes, all require an uprooting of the population — internal migration and occupational mobility at a rate never before witnessed. Economies undergoing rapid economic growth also experience disproportionate expansion of international trade, and throughout the world — developed and less developed alike — economic interdependence grows greatly.

The effect of rapid aggregate growth and massive structural change may be disruptive internally and internationally, a point that Kuznets stressed particularly in his 1971 Nobel Memorial Lecture (Kuznets 1973), which can profitably be read in conjunction with Modern Economic Growth. The income shares of farmers, landowners, and small-scale producers are adversely affected by the structural shifts. Manual work, and especially unskilled labor, is increasingly replaced by office work, and a middle class society of employees — white-collar workers and upper level blue-collar workers — comes to the fore. These changes undermine the pre-existing political structure of a country and necessitate adaptation to the new economic realities imposed by modern economic growth. Kuznets puts it more forcefully: “In that modern economic growth has to contend with the resolution of incipient conflicts continuously generated by rapid changes in economic and social structure, it may be described as a process of controlled revolution” (p. 252).

Similarly, on the international scene, rapid economic growth upsets the world balance of political power, especially as populous countries undergoing modern economic growth acquire new and disproportionate military strength commensurate with their differential productivity growth. The result is an increased tendency toward imperialism, as well as conflict within the developed bloc, as new challengers to early leaders emerge.


Many of the data and findings in Modern Economic Growth — and sometimes more — appeared in a succession of articles on the individual chapter topics between 1956 and 1967 in the journal Economic Development and Cultural Change (Kuznets 1956-67). What was new in Modern Economic Growth was that it assembled the results on the varied topics in one place, and thus provided a concise and comprehensive overview of the nature of long-term modern economic growth as revealed by empirical study. It is noteworthy that in Modern Economic Growth Kuznets relies for his generalizations on historical time series, whereas his papers in Economic Development and Cultural Change included current international cross sectional data as well as time series. In this, Kuznets’ methodology in Modern Economic Growth contrasts with the practice — frequent in his day and even more common now — of inferring historical trends from cross sectional data. In Modern Economic Growth Kuznets makes quite explicit his reservations about using cross sectional data to infer historical trends (pp. 433-437). Put simply it is that at a point in time technology, institutions, and tastes are fixed. But the essence of economic growth is that trends over time are dominated by changes in technology, institutions, and tastes, and these changes are captured poorly, if at all, in cross sectional data.

By the time Modern Economic Growth was published, so many of the empirical studies of Kuznets and his collaborators had already permeated the field that reviewers tended to overlook the landmark importance of the book, and objected that it was short on theory (see for example Blitz [1968] and Williamson [1968]). Admittedly, Kuznets is reserved in his use of economic theory and skeptical of formal mathematical and econometric models. This stems, not from a rejection of theory, but from his concern about the historical relativity of prevailing economic theory. To Kuznets, “much economic writing and theorizing . . . [is] geared to the current conditions and oversimplified to the point of yielding a determinate answer. . . . Such theories . . . tend to claim validity far beyond the limits that would be revealed by an empirical test” (Kuznets 1955, p. 76). Kuznets’ limited reliance on economic theory stems too from what he feels is its limited coverage of social reality. Particularly in the study of economic growth did he feel that an expansion of disciplinary boundaries was necessary. “Much as one may regret leaving the shelters of the accustomed discipline, it does seem as if an economic theory of economic growth is an impossibility, if by ‘economic’ we mean staying within the limits set by the tools of the economic discipline proper” (Kuznets, 1955, p. 73). He would no doubt welcome the interest today in developing theories of economic growth that incorporate institutional change, science and technology, and economic-political interactions.


An enormous and ever-expanding quantitative data base now exists for the study of modern economic growth. The World Bank currently makes available a data archive for over two hundred countries since 1960 embracing a wide variety of economic and social indicators (World Bank, 2001). Working explicitly in Kuznets’ tradition, Angus Maddison (1995) has pieced together from the ever-growing data base time series on national product going back one to two centuries for 56 developed and less developed nations. Robert Summers and Alan Heston (1991) following the lead of Kuznets’ student, Irving B. Kravis, have developed data since 1950 for 152 countries on national product and its components carefully adjusted for international differences in purchasing power. Economic historians have compiled a variety of time series statistics for countries in Europe, Asia, and Latin America (e.g., Mitchell 1975). To a large extent this immense body of data represents the fulfillment of Kuznets’ vision of a quantitative framework for the systematic study of economic growth. For most scholars in the field today — economic historians and economic theorists alike — these data both define the object of study and provide the testing ground for theory. Thus has the study of economic growth been redirected much as Kuznets advocated — a vision become reality.

Writing of Schumpeter, Kuznets once observed that “strong minds are guided by their own interests,” a statement that applied equally to him. In the discipline of economics where deductive analysis is the hallmark of accomplishment, Kuznets, though himself a creative and original thinker, was notable for his insistence on facts and measurement. In a field that prides itself as “queen of the social sciences,” Kuznets reached out to other disciplines both in teaching and research. And in a subject where sweeping ideological prescriptions for reform abound, Kuznets was both in words and example a passionate believer in the ultimate value of science. In 1971 Kuznets received the Nobel Prize in economics for “his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development.”


Ashley, W.J., 1900. “Roscher’s Programme of 1843” in W.J. Ashley, Surveys: Historic and Economic. London: Longmans, Green, pp. 31-37.

Blitz, Rudolph C., 1968. “Review of Simon Kuznets’ Modern Economic Growth: Rate, Structure and Spread,” Journal of Economic History, 38, no.1 (March), pp. 140-142.

Clark, Colin, 1940. Conditions of Economic Progress. London: Macmillan.

Kuznets, Simon, 1949. “Suggestions for an Inquiry into the Economic Growth of Nations,” and “Notes on the Quantitative Approach to Economic Growth” in Universities-National Bureau Committee on Economic Research, Problems in the Study of Economic Growth. New York National Bureau of Economic Research, pp. 3-20, 117-172.

Kuznets, Simon, 1955. “Toward a Theory of Economic Growth,” in Robert Lekachman, National Policy for Economic Welfare at Home and Abroad. Garden City, NY: Doubleday.

Kuznets, Simon, 1956-1967. “Quantitative Aspects of the Economic Growth of Nations,” ten long papers published either in, or as supplements to, Economic Development and Cultural Change.

Kuznets, Simon, 1973. “Modern Economic Growth: Findings and Reflections,” Nobel Memorial Lecture, December 11, 1971, American Economic Review, 63, no. 3 (June), pp. 247-58.

Maddison, Angus, 1995. Monitoring the World Economy, 1820-1992. Paris: Organization for Economic Cooperation and Development.

Mitchell, B.R., 1975. European Historical Statistics 1750-1970. New York: Columbia University Press.

Summers, Robert and Alan Heston, 1991. “The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988,” Quarterly Journal of Economics 106, no. 2 (May), pp. 327-68. On the web at

Williamson, Jeffrey G., 1968. “Review of Simon Kuznets’ Modern Economic Growth: Rate, Structure, and Spread,” Economic Development and Cultural Change, 16, no. 3 (April), pp. 470-474.

World Bank, 2001. World Development Indicators. Washington: World Bank. On the web at

Richard A. Easterlin is the former president of both the Economic History Association and the Population Association of America. He is author of Growth Triumphant: The Twenty-First Century in Historical Perspective and Birth and Fortune: The Impact of Numbers on Personal Welfare.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

The Cambridge Economic History of the Modern World: Volume I, 1700 to 1870

Editor(s):Broadberry, Stephen
Fukao, Kyoji
Reviewer(s):Carreras, Albert

Published by EH.Net (February 2023).

Stephen Broadberry and Kyoji Fukao, eds. The Cambridge Economic History of the Modern World: Volume I, 1700 to 1870. Cambridge: Cambridge University Press, 2021. xvi + 490 pp. £120 (hardcover), ISBN 978-1107159457.

Reviewed for EH.Net by Albert Carreras, Full Professor, Department of Economics and Business, Pompeu Fabra University.


As the first of the two volumes of the Cambridge Economic History of the Modern World (CEHMW), this book covers 1700 to 1870. In title and format it bears a strong similarity to the Cambridge Economic History of Modern Europe (CEHME), also co-edited by Stephen Broadberry and divided into two volumes the same way: 1700-1870 and 1870-present. In both cases, there is an explicit attempt to systematically cover all countries and regions, not just the major ones. To stress the universal coverage, the two CEHMW volumes are mostly organized geographically. This volume’s nineteen chapters are divided into two parts. The first part’s eleven chapters cover “regional developments” and the second part’s eight chapters cover “factors governing performance differentials in the global economy.” Both volumes are organized almost exactly in the same way and include useful “Introductions” by the two editors, summarizing forcefully their purpose, organization, and contents.

The worldwide scope is the main success of the two volumes. A group of top-level contributors cover, in a well-integrated and cohesive manner, eleven major world regions, with some subtle differences between the first volume and the second (already reviewed in EH.Net). Volume one starts with a chapter by Stephen Broadberry, “Britain, the Industrial Revolution and Modern Economic Growth”, which sets the standard for all the other regional chapters, orderly reviewing the themes addressed in both volumes. It is the pièce de résistance of the whole CEHMW. The second chapter, by Giovanni Federico and Andrei Markevich, is on “Continental Europe” and closely follows Broadberry’s pattern. The volume then turns its focus to Asia, with “Tokugawa Japan and the Foundations of Modern Economic Growth in Asia”, by Masaki Nakabayashi; “China: The Start of the Great Divergence”, by Christopher Isett; “From the Mughals to the Raj: India 1700–1858”, by Anand V. Swamy; “Sustainable Development in South East Asia”, by Jean-Pascal Bassino; and “The Ottoman Empire, 1700- 1870”, by Sevket Pamuk. The Americas come next, with “The Economic History of North America, 1700-1870”, by Joshua L. Rosenbloom, and “Latin America, 1700-1870”, by Regina Grafe. The book then moves south, with “Africa: Slavery and the World Economy, 1700-1870”, by Patrick Manning; and “Australia: Geography and Institutions”, by David Meredith.

All these chapters attempt to follow Broadberry’s ordered checklist of themes to be addressed and provide many useful figures and tables that summarize high quality previous research. In some chapters the lack of data and the need to clarify the institutional factors oblige the authors to design simpler checklists to address less straightforward cases where failures in state capacity building are a major issue. Even so, the China and India chapters on the start of the Great Divergence fit in well with the theme and the ambitions of the volume. The Japanese experience emerges as an amazing counterexample of the dramatic Chinese and Indian failures. The South East Asia chapter comes surprisingly close to Broadberry’s checklist. North America and Latin America are well surveyed in chapters that focus on the causes and impact of the independence divide, just in the middle of the period under scrutiny. The Africa chapter is focused on the mass enslavement and export of African populations, and a lot has been researched recently that allows for a better drawing of the main facts. The Australia experience follows closely North American developments.

The editors’ dedication to a global approach to the entire 1700-1870 era is clearer still in the second part of the volume. Reviewing the “Factors Governing Differential Outcomes in the Global Economy” would seem a much more challenging task for 1700-1870 than afterwards. Nevertheless, it is amazing how all the chapters manage to provide a truly world history, mostly by focusing on the large regional units displayed in the first part – Africa, China, India, Latin America, North America, Ottoman Empire, South East Asia – and certain smaller countries (in surface or in population) that deserve to be considered individually – Britain, Japan, and Australia. Some continental European countries are mentioned individually, but not many. In this global approach to the major issues at stake, some parts of the world achieve a more central role than usual: China, India, and Africa. They are not footnotes but substantive parts of all chapters. Bearing this in mind we have two chapters on the proximate sources of growth: “Population and Human Development since 1700” (Romola Davenport and Osamu Saito) and “Proximate Sources of Growth: Capital and Technology, 1700-1870” (Alessandro Nuvolari and Masayuki Tanimoto). There are two chapters on the ultimate sources of growth: “Underlying Sources of Growth: First and Second Nature Geography” (Paul Caruana-Galizia, Tomoko Hashino, and Max-Stephan Schulze) and “Institutions” (John Joseph Wallis). Wallis’s chapter neatly complements Part 1 in its comparison of the institutional consequences of the English and Castilian colonizations.

A special chapter, “Consequences of Growth: Living Standards and Inequality” (Jan Luiten van Zanden, Bas van Leeuwen and Yi Xu), addresses and quantifies the trends in indicators of human development – real income, life expectancy and education – in all major regions, with an eye to changes in inequality.

The last three chapters deal with the global economy: “International Transactions: Real Trade and Factor Flows” (Wolfgang Keller, Markus Lampe, and Carol H. Shiue); “Monetary Systems and the Global Balance of Payments Adjustment in the Pre-Gold Standard Period” (Rui Pedro Esteves and Pilar Nogués Marco), and “War and Empire, 1700-1870” (Philip T. Hoffman and Tirthankar Roy). All three provide truly global views on the far from peaceful making of global economic flows.

The first volume of The Cambridge Economic History of the Modern World is a set of top-quality chapters and authors. As there is less tradition of a fine-tuned chronology for 1700-1870, the absence of explicit temporal divides is not a major issue. On the contrary, the editors have taken care of pressing gently all the authors to provide, as much as possible, a common set of time benchmarks for the figures and tables to be more comparable. In a time of renewed grand views of world development, looking for major theories of why the West became richer than the rest of the world, this first volume provides, in a compact format, the best that the economic history of the world that witnessed the Industrial Revolution has to offer.


Albert Carreras is Full Professor in the Department of Economics and Business at Pompeu Fabra University in Spain. With Xavier Tafunell, he is the author of Between Empire and Globalization: An Economic History of Modern Spain (Palgrave Studies in Economic History, 2021) and editor of Estadísticas Históricas de España, Siglos XIX-XX, 3 vols. (2005).

Copyright (c) 2023 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (February 2023). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Financial Markets, Financial Institutions, and Monetary History
Servitude and Slavery
Military and War
International and Domestic Trade and Relations
Living Standards, Anthropometric History, Economic Anthropology
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century

Barriers to Growth: English Economic Development from the Norman Conquest to Industrialisation

Author(s):Jones, Eric L.
Reviewer(s):Bailey, Mark

Published by EH.Net (August 2022).

Eric L. Jones. Barriers to Growth: English Economic Development from the Norman Conquest to Industrialisation. Palgrave Macmillan: Palgrave Studies in Economic History, 2020. xii + 153pp. £79.99 (hardback), ISBN 978-3-030-44273-6.

Reviewed for EH.Net by Mark Bailey, University of East Anglia.


The causes of the Industrial Revolution are one of the great debates in economic history. What were the forces that transformed human society from centuries of low productivity and organic economic activity to sustained growth, increased wealth per head, and technologically adaptive modernity? In this short, stimulating, and highly readable monograph, Eric Jones offers a fresh perspective on the reasons why the Industrial Revolution occurred so quickly and comprehensively in eighteenth- and nineteenth-century Britain. He considers how manifold minor and subtle institutional changes over the previous eight centuries slowly but inexorably eroded the inefficient customs and practices that had acted as obstacles, impediments and barriers to growth: the net result was to diminish the economy’s susceptibility to shocks (such as disease and extreme weather events), to improve the allocation and productivity of its resources, and hence to enhance its receptiveness to immense and widespread changes from the eighteenth century. He is not concerned with synthesising or critiquing the vast debate on the causes of industrialisation, and pays scant attention to other major debates on the earlier Great Divergence (whereby economic development in Europe pulled ahead of Asia) and the Little Divergence (whereby parts of northwest Europe pulled ahead of the rest of the Continent). He does not rehearse the standard explanations for ‘take off’, such as various prime mover models (e.g., the Protestant work ethic, falling interest rates) or the new technical innovations (e.g., steam power, railways), but instead maintains an unerring focus on elucidating the merits of his alternative line of argument with admirable clarity.

Shifting the focus of the debate away from the various engines driving economic growth to consider instead the gradual evaporation of the ‘deadweight costs of old practices and big blockages inch by inch one after the other’ (p. 144) is inspired. The modern mindset tends to associate economic growth with innovations that increase productivity and social product, but here we are asked to contemplate what had prevented growth and, by extension, how the removal of such impediments in turn stimulated growth. By addressing a familiar debate by posing a different question, Jones re-illuminates it with a searing shaft of light. He forces us to consider how, for example, extravagant and unproductive expenditure on the likes of castles and cathedrals had placed a burden on the productive sectors of the medieval economy ‘by tying up capital in structures designed to intimidate’ (p. 13), and how a reduction in that expenditure released capital for more productive purposes.

Jones argues that the slow reform of institutions and the erosion of customary forms of governance resulted in the better allocation of resources, improved technology and materials, and greater societal resilience to shocks. In the centuries before industrialisation, prolonged, varied, and minor institutional changes occurred at a glacial pace to reduce inexorably deadweight expenditure, to shift assets to people more likely to exploit them productively, to eliminate destructive domestic conflict through civil war, and to enable the exploitation of previously un- or under-utilised resources. These processes were not always linear—some intended improvements could end up choking advancement—and their benefits were sometimes inadvertent, although by the nineteenth century the waning of resistance to change, and the speed of institutional change, were startling. In all of this, Jones captures a common-sensical view that institutions evolve more slowly than technology changes, exerting a drag or brake on productivity gains, and their reform could take decades or centuries (p. 61). He is unquestionably correct to point out that prejudice and the want of a decent education meant that the productivity capacity of women and most of the lower orders of society remained low until the modern era.

Jones elucidates his arguments through eight short, sharp case studies of how various impediments to growth were gradually eroded in the pre-modern era. The first section of the book considers the erosion of obstacles, the second section coping with shocks. The chapters deal in turn with (section one) military and ecclesiastical building; the dissolution of the monasteries; civil war; communal farming and underused land; tithes; archaic institutions; obstructive infrastructure; and maladministration. Then section two consider disease; “insults to agriculture”; storms and adverse seasons; floods; and, finally, fire. The book is topped and tailed with an introduction and conclusion. All of the chapters are short, and each one is accessibly and clearly written. Referencing is light, seldom more than a dozen footnotes per chapter, and Jones’ earlier work features prominently among the citations. Quotable and telling lines jump out of the pages. Communal field systems are ‘a device for preserving equality in principle and poverty in practice’ (p. 53), and the voices and zeal of nineteenth-century social reformers ‘relegated the lifestyle of the Regency bucks to dark corners’ (p. 82).

While there is no synthesis or critique of the manifold other theories about and approaches to the causes of the Industrial Revolution, Jones is undoubtedly well informed about them. Nor does he attempt to measure the growth of the English economy over time to identify key phases for his readers, and so Broadberry, et al.’s monumental British Economic Growth 1270 to 1870 (2015) does not warrant a footnote. He is respectful of, but unimpressed by, overarching explanations for the Industrial Revolution based on an identified prime mover. He recognises that they provide a powerful conceptual framework to ‘put inchoate events into some type of order’ (p. 32) and render comprehensible the ‘bewildering surface of manifold events’, while exposing their limitations: taking predetermined abstractions as given, cherry-picking examples that fit the theory while overlooking detailed historical experience that does not, and confusing correlation with causation. Equally, Jones is fully aware that localised history can fail to identify key patterns, or segregate the significant from the insignificant, and can be too susceptible to ad hoc interpretations. So we are offered neither a new prime mover theory nor a fresh empirical study, but an alternative pathway for exploring an old conundrum. To illustrate his approach, Jones mines a succession of local examples from obscure local history journals and publications, and from the disused works of great historians, such as Hoskins, Willan, and Trevelyan. As he states, ‘local evidence sometimes alters one’s mind about relative significance and I do not always discern the world of my ancestors in the abstractions of my profession’ (p. 3).

The drawback with this approach, and with Jones’ predilection for citing his own work in a threadbare system of referencing, is that occasionally—but only occasionally—an important and relevant scholarly contribution is overlooked, an opportunity is missed, or a point is stretched too far. As an example of the latter, Jones states that the transition from wooden to stone bridges awaited the late eighteenth century, and cites lengthy disputes over their upkeep, as examples of obstructive infrastructure (pp. 70-1) in the pre-modern era, yet the work that he cites (Harrison, 2004) actually states that such disputes were not the norm and that most bridges were built of stone by 1700. As an example of the former, a whole chapter is devoted to the theory developed by Leander Heldring, James A. Robinson, and Sebastian Vollmer (2015) that the dissolution of the monasteries in the 1530s created a land market and harnessed the entrepreneurial zeal of the gentry, which combined to remove a dead weight from the economy and catapulted England and Wales to industrial growth. Jones deploys their essay skilfully to illustrate the benefits of his own approach while gently highlighting the limitations of such an overarching monocausal theory constructed by economists with limited grasp of the historical reality and scholarship. Yet the prominent and influential work of Bruce Campbell (2005, 2008) is omitted from the analysis, even though it reveals that the landed estates of religious houses comprised no more than 5% of the arable area of England, over half of which by the 1530s was in the hands of tenants in the form of leases or other forms of tenure. Thus we have a splendid example of economists and early modern historians overlooking important work in medieval history (they are not alone…medieval historians are also guilty of not engaging with economists and early modernists!), which has established that religious houses had direct control of less than 2% of the arable land of England. In which case, how can their dissolution have had such a transformative effect on the land market and the productive capacity of English agriculture, or, indeed, how can their dissolution have removed a significant obstacle to economic growth?

These observations do not detract from Jones’ fundamental argument, they simply underline the need for more careful formulation and exemplification. Jones selects various cogent examples of customary practices that impeded growth—such as tithe payments to the church, which were not removed until a parliamentary act in the nineteenth century—and, following his lead, other economic historians will be stimulated to contribute grist to his mill from their own areas of expertise. One example would be the history of tenures, whose structure evolved significantly between the thirteenth and seventeenth centuries. The peculiar institutional structure of land tenure before the Black Death of 1348-9 meant that the pressure of rising population caused land holdings to splinter, mean holding size to plummet and immiseration to spread, and therefore it acted as a major barrier to the growth of the medieval economy. In the decades after the Black Death this archaic structure was gradually dismantled through the adoption of more contractual and monetarised tenures, and the shift of a higher proportion of land from the seigniorial to the (hands on) peasant sector, both of which enabled more productive use of landed resources in the early modern period.

Another topic worthy of closer scrutiny is the development of the law, which in general receives bad press from Jones. He portrays property law as cumbersome and expensive until the introduction of a comprehensive system of land registration, and depicts the legal system more widely as corrupt, self-serving, protecting the interests of elites, and raising transaction costs for producers (e.g., pp. 36, 56, 138). While the English legal system was certainly neither equitable nor fair, it was better than the alternative. The development of a system of common law from the late twelfth century under the auspices of royal justices and officials, and the permeation of its principles and processes into the operation of many other local tribunals such as manorial and market courts, had profound, far-reaching, and inadvertent consequences in removing barriers to growth. It created a culture of decision-making and dispute resolution based on written proofs, precedents, formal modes of representation, and consistent treatment of similar wrongs. It was hostile to personal discretion and arbitrary judgements in social relations, and—to some extent—held the elite to account. It enabled land to be treated as an asset transferable for money rather than a gift in exchange for services, and its title to be defensible and heritable, therefore creating a liquid asset capable of acting as security for loans. It offered cheap, accessible, independent and (relatively) fair resolution in petty disputes over debt, trespass and breach of contract. In short, the development and spread of a legal system and culture reduced risks and transaction costs in commercial activities, providing a major incentive to the growth of factor and commodity markets. Indeed, Jones himself acknowledges that the presence of an independent legal tradition in Western Europe was a key element in the Little Divergence (p. 89).

This is a stimulating, enlightening, engaging, wise and learned book, packed with common sense and sharp analysis, and characterised by a lucid writing style gloriously free from jargon. Jones is a leading scholar at the top of his game, and provides a new perspective and a framework for analysing economic growth that will advance one of the great debates in economic history.


Mark Bailey is Professor of Late Medieval History, University of East Anglia. He is the author of The Decline of Serfdom in Late Medieval England (2014) and in 2019 was the James Ford Lecturer in British History at the University of Oxford; the Ford Lectures have been published as After the Black Death. Economy, Society and the Law in Fourteenth-Century England (2021).

Copyright (c) 2022 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (August 2022). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Industry: Manufacturing and Construction
Markets and Institutions
Geographic Area(s):Europe
Time Period(s):General or Comparative

The Cambridge Economic History of the Modern World: Volume II, 1870 to the Present

Editor(s):Broadberry, Stephen
Fukao, Kyoji
Reviewer(s):Carreras, Albert

Published by EH.Net (February 2022).

Stephen Broadberry and Kyoji Fukao, eds. The Cambridge Economic History of the Modern World: Volume II, 1870 to the Present. Cambridge: Cambridge University Press, 2021. xv + 566 pp. £120 (hardcover), ISBN 978-1-107-15948-8.

Reviewed for EH.Net by Albert Carreras, Full Professor, Department of Economics and Business, Pompeu Fabra University.


The book edited by Stephen Broadberry and Kyoji Fukao is the second volume of The Cambridge Economic History of the Modern World (CEHMW).  It covers 1870 to the present. In title and format this two-volume set bears a strong similarity to 2010’s Cambridge Economic History of Modern Europe (CEHME), also co-edited by Stephen Broadberry and in two volumes divided between 1700-1870 and 1870-present. In both cases, there is an explicit desire to cover all countries, not just the major ones, and double or triple authorship is used to ensure familiarity with geographically or thematically very broad literatures.  Unlike the second volume of the CEHME, the CEHMW volume itself is not organized into major subperiods (1870-1914, 1914-1945, 1945-2000). It is divided into two parts, the first with eleven chapters and the second with eight. The first part covers “regional developments,” and the second covers “factors governing performance differentials in the global economy.” The effort to treat Europe as a single unit of analysis has had to give way to the recognition of the deep regional diversity of the world. The major historical stages are treated in each and every chapter, both regional and thematic.

The quest for universal coverage is the first and perhaps the main success of the work. A group of top-level contributors cover, in a well-integrated and cohesive manner, eleven major regions: “North America: The Rise of US to Technological and Economic Leadership” (Paul Rhode); “Western Europe: Convergence and Divergence” (Paul Sharp); “The Socialist Experiment and Beyond: The Economic Development of Eastern Europe” (Tracy Dennison and Alexander Klein); “Japan: Modern Economic Growth in Asia” (Kyoji Fukao and Tokihiko Settsu); “Economic Change in China: The Role of Institutions and Ideology” (Debin Ma); “From Free Trade to Regulation: The Political Economy of India’s Development” (Bishnupriya Gupta);  “Growth and Globalization Phases in South East Asian Development” (Gregg Huff); “The Middle East: Decline and Resurgence in West Asia” (Mohamed Saleh); “Latin America: Stalled Catching Up” (Pablo Astorga and Alfonso Herranz-Loncán);  “African Economic Development: Growth, Reversals, and Deep Transitions” (Ewout Frankema), and “Australia: Prosperity, Relative Decline and Reorientation” (Gary B. Magee). North Africa is in the Middle East one. Coverage is systematic, and where the text does not go, tables and graphs provide missing information. As an indication of the radical nature of the experiment and the absence of bias (as seen from peripheral Europe), I can attest that the only large and wealthy country not specifically covered is Canada, although it appears on several occasions in the second part. All the world’s economies of large and medium demographic and economic size – and many small – are covered, and all with comparable indicators and issues.  The volume and the first part are not organized around distances from the initial leader, the United Kingdom, but from the leader for most of the period – the United States. This approach provides a consistent and compact view of a wide array of different experiences. Of course, the better known the region in economic historiography, the fewer the surprises in the chapter, regardless of the quality – always very high – of the authors. But there is no doubt that there are chapters that represent a more innovative or inspiring approach, such as those on China, India, Southeast Asia, the Near East and North Africa, and Africa. Less prior knowledge or fewer previous syntheses or less well fit regions into world economic historiography provide opportunities for their authors to shine.

While the first part is built on firm foundations –as firm as the available statistical data can be- and on previous historiographies almost as diverse in degrees of development as the experiences of the regions themselves, the second part is different. It deals with immense topics, which have been studied in a regionally irregular way, but for which there are, in all cases, brilliant overall approaches.  The editors have forced pairs or trios of authors to fit together vast and diverse literatures. In the first part, there are more individual authorships (eight out of eleven) and there are fourteen authors in total. In the second part, there are no individual authorships, and for good reasons. With only eight chapters there are eighteen different authors. Thus we have two chapters on the proximate sources of growth: “Healthy, Literate and Smart: The Global Increase of Human Capital” (Latika Chaudhary and Peter Lindert) –a whole world of hot academic issues- and “Proximate Sources of Growth: Capital and Technology” (Rajabrata Banerjee, Robert Inklaar, and Herman de Jong). There are two more on the ultimate sources of growth: “Underlying Sources of Growth: First and Second Nature Geography” (Paul Caruana-Galizia, Toshihiro Okubo, and Nikolaus Wolf) and “Underlying Sources of Growth: Institutions and the State” (James Foreman-Peck and Leslie Hannah), both as fashionable as durable. There is one special chapter bringing together the economic history answers to all those critical of the very concept of growth: “Living Standards, Inequality, and Human Development” (Leandro Prados de la Escosura and Myung Soo Cha). The last three chapters are devoted to the global economy: “Trade and Immigration” (David S. Jacks and John P. Tang); “International Finance” (Barry Eichengreen and Rui Pedro Esteves) and “War and Empire” (Jari Eloranta and Leigh Gardner). Perhaps the one that seems more conventional in title is “International Finance”, but it is a masterful innovative view of the whole period. Most of the others have had to build their arguments and fit together their parts, often from scratch.  No major issues are absent. The territorial coverage is always broad. The major historical stages are well covered. Where possible, temporally continuous visions are provided that help the readers form chronological interpretations. Each chapter puts together quite different strands of literature in a suggestive manner. The result is a series of chapters that contain, each of them, the full potential of a book – or an entire library.

The work is always well interwoven. The cohesive action of the editors is visible. The “Introduction” is a proper one, displaying the main argument.  The volume is a breakthrough that could have seemed impossible to achieve ex ante.  The second volume of the CEHMW is a set of masterful, synthetic and inspiring texts.  But this reviewer feels a sense of longing for a more explicit chronological organization of the evolution of economic history. Can we think of the world economy without breaking down the last century and a half into periods that are intensely marked by truly global historical episodes, such as World War I, World War II and the collapse of the Soviet bloc?  I miss it and I encourage new attempts to reconstruct this historical approach, which could have taken the form of a distinct part and four more chapters or of a conclusive chapter or of a longer introduction or, now that the project is finished and published, a new, short book –a nice challenge for the editors. In the meantime, I encourage all economic historians and social scientists at large to enjoy the well-researched and intelligent feats of synthesis in the second volume of the CEHMW, which offer us a front row view of the best that the economic historiography of the modern world has to offer.


Albert Carreras is Full Professor in the Department of Economics and Business at Pompeu Fabra University in Spain. With Xavier Tafunell, he is the author of Between Empire and Globalization: An Economic History of Modern Spain (Palgrave Studies in Economic History, 2021) and editor of Estadísticas Históricas de España, Siglos XIX-XX, 3 vols. (2005).

Copyright (c) 2022 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (February 2022). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Government, Law and Regulation, Public Finance
Historical Geography
History of Technology, including Technological Change
Military and War
International and Domestic Trade and Relations
Living Standards, Anthropometric History, Economic Anthropology
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Global Economic History

Editor(s):Roy, Tirthankar
Riello, Giorgio
Reviewer(s):La Croix, Sumner

Published by EH.Net (December 2019)

Tirthankar Roy and Giorgio Riello, editors, Global Economic History. London: Bloomsbury Academic, 2019. xiv + 370 pp. £26 (paperback), ISBN: 978-1-4725-8843-2.

Reviewed for EH.Net by Sumner La Croix, Department of Economics, University of Hawai‘i-Mānoa.

Tirthankar Roy and Giorgio Riello invited twenty-one contributors to explore one specific question: Why does a global perspective on economic history matter? The volume focuses on the last five centuries and takes the Great Divergence as the fundamental phenomenon around which our understanding of global economic history should be organized. The Great Divergence refers to the gap in wages and living standards that emerged, sometime between 1700 and 1800, among the most successful economies in Europe and the most successful economies in the Middle East, China, and India.

The first seven of the book’s nineteen chapters are devoted to reviewing our understanding of the Great Divergence, which has generated an enormous literature in history and economic history since Ken Pomeranz’s 2000 book on this topic. In this volume (chapter 1), Prasannan Parthasarathi and Pomeranz review this debate and criticize researchers who argue that the divergence emerged as early as the late seventeenth century in India and China (Broadberry and Gupta, 2015) and those who argue that the application of science to produce useful productive knowledge was the “critical” development in the early years of the industrial revolution in Europe (e.g., Mokyr, 2016). Jack Goldstone (chapter 2) provides a lucid chapter on the dating of the Great Divergence that features discussions of “efflorescent” growth in leading economies prior to the nineteenth century. (Efflorescent growth occurs when a brief spurt in productivity leads to several decades of high but ultimately unsustainable output growth.)

Patrick O’Brien (chapter 3) and Karel Davids (chapter 4) consider “useful and reliable knowledge and technology as two of the key factors explaining differing trajectories of global economic change” (p. 10). Both express some skepticism that changes in science and philosophy were accumulating in Europe during the seventeenth and early eighteenth centuries that ultimately led to the Great Divergence. Regina Grafe and Maarten Prak’s (chapter 5) interesting chapter considers how changes in organizations and institutions across different levels of society were both a response to and a cause of economic growth. Trevor Burnard (chapter 6) reviews how the development of plantations in the Americas contributed to British and French growth in the seventeenth and eighteenth centuries, while Maxine Berg (chapter 7) considers how changes in global consumption patterns affected the emergence of the Great Divergence.

The next set of chapters addresses a broad set of factors behind the emergence of the world economy after 1500. In their wide-ranging survey of the growth of global trade, Tirthankar Roy and Giorgio Riello (chapter 8) argue that “soft globalization” — trade in luxury goods — was an important precursor to the nineteenth century emergence of “hard globalization” — mass trade in commodities. J.R. McNeill (chapter 9) provides a succinct review of interactions between the global environment and the world economy, including such topics as the Columbian exchange, the environmental consequences of plantation economies, the effect of industrialization on the environment and “a rumination upon the concept of the Anthropocene” (p. 158). Alessandro Stanziani (chapter 10) contrasts the development of free labor forces in Britain and France, and the rise of indentured labor as slavery was abolished. Kaoru Sugihara (chapter 11) discusses how differential resource endowments affected industrialization in different parts of Asia from the mid-nineteenth to the mid-twentieth century and then briefly reviews the process by which industrialization diffused throughout Asia in the second half of the twentieth century. Bernd-Stefan Grewe (chapter 12) discusses the recent use of “commodity histories,” “commodity chain” and “value chain” approaches in economic history and then applies and critiques applications of these approaches to the study of gold in the world economy. And Youssef Cassis (chapter 13) provides a short survey of the rise of global finance from 1850 that focuses on the rise of international financial centers in both developed and developing countries.

The volume closes with six short (13-20 pages each) tightly-argued chapters that provide regional perspectives to global economic change over the past 400 to 500 years: Gareth Austin (Africa), Alejandra Irigoin (South America), Debin Ma (East Asia), Peer Vries (Europe), Bishnupriya Gupta and Tirthankar Roy (South Asia), and J. Thomas Lindblad (Southeast Asia). The chapter by Alejandra Irigoin is particularly worth reading, as it stands as a plea for more research by economic historians on how trade flows in the Pacific Ocean evolved from their origins in the Spanish trade in silver and Chinese goods in the seventeenth century and how they ultimately affected the global economy.

The book benefits from lucid writing by its contributors who cover extensive terrain in a small amount of space as they argue for a more global perspective on virtually every important issue addressed by economic historians. The literature on the New History of Capitalism appears in several chapters, with some authors dangerously close to ignoring its many flaws in their acknowledgement of its insights (Hilt, 2017; Olmstead and Rhode, 2018). The volume is relatively short, just 359 pages, given its ambitions to cover so many topics and to provide regional overviews spanning several centuries. The brevity may be due to the authors’ desire for the book to serve as a textbook for global economic history courses (as stated on the back cover), but the brevity comes at the cost of giving too little attention to European developments. For example, the authors refer repeatedly to the eighteenth- and nineteenth-century industrial revolution but tell the reader almost nothing about it. As a textbook, it cannot stand alone, but as a stimulating summary of some of the new contributions to global economic history, it is well worth reading.


Broadberry, Stephen, and Bishnupriya Gupta. “The Early Modern Great Divergence: Wages, Prices, and Economic Development in Europe and Asia, 1500-1800,” Economic History Review 59 (2006), 2-31.

Broadberry, Stephen, Hanhui Guan, and David Daokui Li. “China, Europe, and the Great Divergence: A Study in Historical National Accounting, 980–1850,” Journal of Economic History 78 (2018), 955-1000.

Hilt, Eric. “Economic History, Historical Analysis, and the ‘New History of Capitalism,’” Journal of Economic History 77 (2017), 511-536.

Mokyr, Joel. A Culture of Growth: The Origins of the Modern Economy. Princeton: Princeton University Press, 2016.

Olmstead, Alan, and Paul Rhode, “Cotton, Slavery, and the New History of Capitalism,” Explorations in Economic History 67 (2018), 1-17.

Pomeranz, Kenneth. The Great Divergence: China, Europe, and the Making of the Modern World. Princeton: Princeton University Press, 2001.

Sumner La Croix, emeritus professor of economics at the University of Hawai‘i-Mānoa, is the author of Hawai‘i: Eight Hundred Years of Political and Economic Change, University of Chicago Press, 2019.

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2019). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War

Author(s):Gordon, Robert J.
Reviewer(s):Margo, Robert A.

Published by EH.Net (July 2016)

Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War.  Princeton, NJ: Princeton University Press, 2016. vii + 762 pp. $40 (cloth), ISBN: 978-0-691-14772-7.

Reviewed for EH.Net by Robert A. Margo, Department of Economics, Boston University.

This is the age of blockbuster books in economics. By any metric, Robert Gordon’s new tome qualifies.  It tackles a grand subject, the productivity slowdown, by placing the slowdown in the context of the historical evolution of the American standard of living.  Gordon, who is the Stanley G. Harris Professor in the Social Sciences at Northwestern University, needs no introduction, having long been one of the most famous macroeconomists on planet Earth.

The Rise and Fall of American Growth is divided into three parts.  Part One (chapters 2-9) examines various components of the standard of living, in levels and changes from 1870 to 1940.  Part Two (chapters 10-15) does the same from 1940 to the present, maintaining the same relative order of topics (e.g. transportation appears after housing in both parts).  Part Three (chapters 16-18) provides explanations and offers predictions up through 2040.  There are brief interludes (“Entre’acte”) between parts, a Postscript, and a detailed Data Appendix.

Chapter 1 is an overview of the focus, approach, and structure of the book.  Gordon’s focus is on the standard of living of American households from 1870 to the present.  The approach is both quantitative — familiar to economists — and qualitative — familiar to historians.  As already noted, the organization is symmetric — Part One considers the pre-World War II period, and Part Two, the post-war.  The fundamental point of the book is that that some post-1970 slowdown in growth was inevitable, because so much of what was revolutionary about technology in the first half of the twentieth century was revolutionary only once.

Chapter 2 draws a bleak picture of the standard of living ca. 1870, the dawn of Robert Gordon’s modern America.  From the standpoint of a household in 2016, conditions of life in 1870 would appear to be revolting.  The diet was terrible and monotonous to boot; homemade clothing was ill-fitting and crudely made; transportation was dependent principally on the horse, which generated phenomenal amounts of waste; indoor plumbing was all but non-existent; rural Americans lived their lives largely in isolation of the wider world.  In Gordon’s view, much of this is missing from conventional real GNP estimates.  Chapter 3 continues the initial story, focusing on changes in food and clothing consumption.  Gordon contends there was not much change in underlying quality but he argues that, by the 1920s, consumers were paying lower prices for food — having shifted to lower-priced sources (chain stores as opposed to country merchants) — and that most clothing was store-bought rather than homemade.

Chapter 4 studies housing quality.  As with other consumer goods, housing also improved sharply in quality from 1870 to 1940.  Gordon argues that much farm housing was poor in quality, while new urban housing was typically larger and more durably built.  Indoor plumbing, appliances and, ultimately, electrification dramatically enhanced the quality of life while people were indoors.  As elsewhere in the book, reference is made to hedonic estimates of the value of these improvements as revealed in higher rents. Chapter 5 details improvements in transportation between 1870 and 1940. These are grouped into three categories.  The first is improvement in inter-city and inter-regional transportation in rail.  This occurs chiefly through improvements in the density of lines and in the speed of transit. The second is intra-city which occurred with the adoption of the electric streetcar.  The third, and most important arguably, is the internal combustion engine and its use in the automobile (and bus).  Gordon especially highlights improvements in the quality of automobiles, noting that the car is not reflected in standard price indices until the middle of the Great Depression.

Chapter 6 details advances in communication from 1870 to 1940.  By current standards, the relevant changes — the telegraph, telephone, the phonograph, and the radio — might not seem like much but from the point of view of a household in 1870, these technologies enabled Americans to dramatically reduce their isolation.  As Gordon points out, one could phone a neighbor to see if she had a cup of sugar rather than visit in person, or listen to Enrico Caruso’s voice on the phonograph if it were not possible to hear him in concert.  The radio brought millions of Americans into the national conversation, whether it was to hear one of Franklin Roosevelt’s fireside chats or listen to a baseball game.  Chapter 7 discusses improvements in health and mortality from 1870 to 1940 which, according to Gordon, were unprecedented.  After summarizing these, he turns to causes, chief among which are improved urban sanitation, clean water, and uncontaminated milk.   Gordon also highlights improvements in medical knowledge, particularly the diffusion (and understanding) of the germ theory of disease.  Chapter 8 studies changes in the quality of work from 1870 to 1940.  These changes were wholly for the better, according to Gordon.  Work became less dangerous, more interesting, and more rewarding in terms of real wages.  Most importantly, there was less working per se, as weekly hours fell, freeing up time for leisure activity.  There was a marked reduction in child labor, as children spent more of their time in school, particularly at older ages in high school.   This was also the period leading up, as Claudia Goldin has told us, to the “Quiet Revolution” in the labor force participation of married women, which was to increase substantially after World War II. Credit and insurance, private and social, is the topic of Chapter 9.  The ability to better smooth consumption and also insure against calamity are certainly improvements in living standards that are not captured by standard GNP price deflators.  Initially the shift of households from rural to urban areas arguably coincided with a decrease in consumer credit but by the 1920s credit was on the rise due to several innovations previously documented by economic historians such as Martha Olney.   Households were also better able to obtain insurance of various types (e.g. life, fire, automobile); in particular, loans against life insurance were frequently used as a source for a down payment on a house or car.  Government contributed by expanding social insurance and other programs that helped reduced systemic risks.

Chapter 10 begins the second part of the book, which focuses on the period from 1940 to the present.  As noted, the topic order of Part Two is the same as Part One, so Chapter 10 focuses on food, clothing, and shelter.  Gordon considers the changes in quality in these dimensions of the standard of living to be less monumental than as occurred before World War II.  For example, frozen food became a ubiquitous option after World War II but this change is far less important than the pre-1940 improvement in the milk supply.  Quantitatively, perhaps the most important change was a reduction in relative food prices which, predictably, led to increase in the quantity demanded.  Calories jumped, and so did obesity and many related health problems.  For clothing, the chief difference is in the diversity of styles and, as with food, a sharp reduction in relative price holding quality constant.  In Chapter 11 Gordon notes that automobiles continued to improve in quality after World War II, mostly in terms of amenities and gas mileage; and their usefulness as transportation improved with the building of the interstate highway system.  Gordon is less sanguine about air transportation, arguing that quality of the travel experience deteriorated after deregulation which was not offset by reductions in relative prices.  For housing, the major changes was suburbanization and a concomitant increase in square footage.  The early postwar period witnessed some sharp improvements in the quality of basic household appliances, and somewhat later, the widespread diffusion of air conditioning and microwaves.

Chapter 12 focuses on media and entertainment post-1940.  Certain older forms of entertainment gave way to television, the initial benefits of which were followed by steady improvements in the quality of transmission and reception.  Similarly, there were sharp improvements in the various platforms for listening to music, with substantial advances in recording technology and delivery — the 78 gave way to the LP to the CD to music streaming and YouTube.  The technology to deliver entertainment also delivered the news in ever greater quantity (quality is in the eye of the beholder, I suppose).  Americans today are connected almost immediately to every part of the world, a level of communications unthinkable a century ago.  A surprisingly brief Chapter 13, recounts the history of the modern computer.  There is no way to tell this history without emphasizing just how unprecedented the improvements have been, from the very first post-war computers to today’s laptops and supercomputers.  Moore’s Law, understandably, takes center stage, followed by the Internet and e-commerce.   Gordon has a few negative things to say about the worldwide web, but the main act — why haven’t computers led a revolution in productivity — is saved for later in the book.

Chapter 14 continues the story of health improvements to the present day.  As everyone knows, the U.S. health care system changed markedly after World War II, in terms of delivery of services, organization, and payment schemes.  Great advances were made in cardiovascular care and treatment of infectious disease through the use of antibiotics.   There were also advances in cancer treatment, mostly achieved by the 1970s; the subsequent “war” on cancer has not been as successful.  Most of the benefits were achieved through diffusion of public health and expansion of health knowledge in the general public (e.g. the harmful effects of smoking).  Since 1970 the health care system has shifted to more expensive, capital intensive treatments primarily provided in hospitals that have led to an inexorable growth in medical care’s share of GNP, increases that most scholars agree exceed any improvements in health outcomes.  The chapter concludes with a mixed assessment of Obamacare.  Chapter 15, on the labor force, is also rather short for its subject matter.  Gordon recounts the major changes in the structure and composition of work since World War II.  Again, it is a familiar tale — improved working conditions due to the shift towards the service sector and “indoor” jobs; rising labor force participation for married women; rising educational attainment, at least until recently; and the retirement revolution.  Your faithful reviewer gets a shout-out in a brief discussion of the “Great Compression” of the 1940s; my collaborator in that work, Claudia Goldin (and her collaborator, Lawrence Katz) gets much more attention for her scholarly contributions on the subject matter of Chapter 15, understandably so.

Part Three addresses explanations for the time series pattern in the standard of living.  Chapter 16 focuses on the first half of the twentieth century, which experienced a marked jump in total factor productivity (TFP) growth and the standard of living.  Gordon considers several explanations, dismissing two prominent ones — education and urbanization — right out of the gate.   In paeans to Paul David and Alex Field, he argues that the speed-up in TFP growth can be attributed to the eventual diffusion of key inventions of the “Second” industrial revolution, such as electricity; to the New Deal; and, finally, to World War II.  Chapters 17 and 18 tackle the disappointing performance of TFP growth and the standard of living in the last several decades of U.S. economic history.  Despite remarkable accomplishments in science and technology the impact on average living standards has been small, compared with the 1920-70 period.  Rising inequality since 1970, which can be tied in part to skill-biased technical change, has made matters worse, as did the Great Recession.  While Gordon is not all doom and gloom, he definitely falls on the pessimist side of the optimist-pessimist spectrum — his prediction for labor productivity growth over the 2015-40 period is 1.2 percent per year, a full third lower than the observed rate of growth from 1970 to 2014.

I think it is next to impossible to write a blockbuster economics book without it being a mixed bag in some way or other.  Gordon’s is no exception.  On the plus side, the book is well written, and one can only be in awe of Gordon’s mastery of the factual history of the American standard of living.  We all know macroeconomists who dabble in the past.  Gordon is no dabbler.  One can find interesting ideas for future (professional-level) research in every chapter — graduate students in search of topics for second year or job market papers, take note.  Many previous reviewers have chided Gordon for his pessimistic assessment of future prospects.  Of course, no one knows the future, and that includes Gordon.  It is certainly possible that he will be wrong about productivity growth over the next quarter-century — but I for one will be surprised if his prediction is off by, say, an order of magnitude.

I am less sanguine about the mixed qualitative-quantitative method of the book.  I gave up reading the history-of-technology-as-written-by-historians-of-technology a long time ago because it was just one-damn-invention-after-another.  At the end of a typical article recounting the history of improvements in, say, food processing, I was supposed to conclude that no amount of money would get me to travel back in the past before said improvements took place — except I never did reach this conclusion, knowing it to be fundamentally wrong.  Despite references to hedonic estimation, TFP, and the like, in the end Gordon’s book reads very much like conventional history of technology.  More than a half century ago Robert Fogel showed how one could quantify the social savings of a particular invention, thereby truly advancing scholarly knowledge of the treatment effects. Yet Railroads and American Economic Growth is not even cited in Gordon’s bibliography, let alone discussed in the text.  If one’s focus is the aggregate, I suppose a Fogelian approach is impossible — there are too many inventions, and (presumably) an adding-up problem to boot.  What exactly, though, do we learn from going back and forth between quantitative TFP and qualitative one-damn-invention-after-another? I’m not sure.  There’s the rub, or rather, the tradeoff.

Criticisms aside, if you are into economics blockbusters, The Rise and Fall of American Growth belongs on your bookshelf, next to Piketty and the like.  Just be sure it is a heavy-duty bookshelf.

Robert A. Margo’s Economic History Association presidential address, “Obama, Katrina, and the Persistence of Racial Inequality,” was published in the Journal of Economic History in June 2016.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2016). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
History of Technology, including Technological Change
Household, Family and Consumer History
Living Standards, Anthropometric History, Economic Anthropology
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Robert W. Fogel: Visionary economic historian, generous mentor, eternal optimist

Written by: Dora Costa, Claudia Goldin, and Robert A. Margo


Generous Mentor, Eternal Optimist, Enthusiastic Guide

Robert W. Fogel was a visionary economic historian whose works and lectures have informed and incited for more than half a century and whose writings will continue to do so for decades to come.  He died on June 11, 2013 in his eighty-sixth year.  He had co-taught a graduate course at the University of Chicago that quarter and in the weeks before he died he was planning his Fall 2013 teaching.  “I’ve often told my students I’m not retiring. You’re going to have to carry me out in a wooden box.  I’m having too much fun,” he remarked to a recent class.

His fun was palpable to others and his enormous enthusiasm for the material he taught overflowed to his audience.  Legendary for encouraging students to pursue their ideas, he was an eternal optimist about their abilities and projects.  Bob had a fine sense of humor and his chuckle was an integral part of his speech.  He was known for his generosity and humanity.  A scholar of high standards, he often leavened criticism of students with a rare gentleness.

He taught by example the importance of being more interested in what others are doing than in oneself and that social time is a critical input to scholarly time.  No matter how busy he was he always found time to engage with others.  No opinion was too small to debate and no person too inconsequential to engage with.  He was, as well, an institution builder.  He founded the Development of the American Economy Program at the National Bureau of Economic Research in 1978 and it thrives until today.  He established the Center for Population Economics at the University of Chicago, although it has, sadly, passed along with him.  Bob thought big both in terms of his projects and the apparatus that buttressed them.

How Bob accomplished so much was due to his exceptional mind, laser beam vision and extraordinary work ethic.  It has been said that when the Nobel committee called him around 5:30am he was already up working in his office, as he was every day.

The Fogel System of Research

The Fogel system of research is characterized, in the first instance, by a question of contemporary relevance that requires the long lens of history.  The issues examined are big and are those that have engaged generations of scholars.  Because there are already a host of potential answers for the question and generally one that has dominated the literature, the Fogel system creates a “counterfactual.”  If the answer proposed to question Y is X (Y = what caused economic growth? and X = railroads), then the Fogel system must prove that if not for X (railroads) the premise of question Y would not have occurred (there would have been far less economic growth).  Finally, the Fogel system takes what appears to be an intractable problem (e.g., creating an economy without the railroad) and simplifies the answer into a single number.

Although the counterfactual is most associated with Fogel’s work on the railroads, it is also imbedded in his other work.  Much of the work on slavery addressed the counterfactual: “Had slavery not existed in the United States, the South would have been a wealthier region.”  That was the claim of many whose writings preceded Time on the Cross.  In his work on standards of living, the implicit counterfactual was: “Had incomes not risen in eighteenth century Europe mortality and morbidity would have been markedly worse.”  In this case, the counterfactual was shown to have been true.  Moreover, use of counterfactuals is inescapable.  If, as Fogel believed, the long lens of history is needed to inform the present, one must ask what the present would look like without some part of the long lens.  Each of the three major research projects of his career illustrates this fundamental methodological point.

The Projects

Bob’s reputation was largely made by his PhD dissertation on the railroads. He estimated that the “social savings of the railroad,” including both the interregional and intraregional portions, was between 6 and 7 percent of 1890 GNP.[1]  Whether that is a large or small number is in the eyes of the beholder.  But to many it was a small number relative to prior claims that the railroad was indispensable to American economic growth.  The main reason the estimate is not larger is that there were many substitutes for the railroad in the United States in the form of water transportation.  The social savings was much higher in places like Mexico where there were poorer substitutes for the railroad.

But Railroads and American Economic Growth went far beyond measuring the aggregate “treatment effect” of the Iron Horse.  The idea of jump-starting economic growth was a popular notion in the 1950s and big infrastructure projects were a potential lever for developing nations.  As a graduate student at Johns Hopkins, Fogel had actively debated the work of Walt Rostow with his classmate Stan Engerman.  According to Rostow an economy could “take-off” because of a single innovation and, moreover, America did take-off in the 1840s through the railroad’s many backward linkages.  On the contrary, demonstrated Fogel, there was no take-off and backward linkages were neither extensive nor critical to growth in other sectors.  The railroads were not a magic bullet for economic growth because there are no magic bullets.

The Ivory Tower of the 1960s was no scholarly oasis from the intrusions of the real, political world.  Married to an African-American woman, Bob could not escape heated discussion of Civil Rights even at the dinner table.  Stan Engerman and he embraced the topic of slavery with all of its potential social and political improprieties.  Would slavery have died out, without a protracted, bloody, divisive, and costly Civil War?  No, because slavery was profitable and viable.  Was the relative poverty of the post-Civil War South a mere extension of slavery?  No, because the per capita income of antebellum white southerners was about equal to that of Midwestern farmers and because the southern economy grew at the national average between 1840 and 1860.  Were slave owners the principal economic beneficiaries of the Peculiar Institution because they ruthlessly “exploited” their chattel?  The answer is more complicated.  Fogel and Engerman uncovered precisely why the force of slavery produced enormous wealth.  The gang system made cotton and other staple crops cheaper and all of this eventually benefited consumers through lower prices.  Fogel and Engerman also maintained there was a record of black achievement during and after slavery that deserved celebration.  As expressed in the frontispiece to Time on the Cross—a dedication to Bob’s wife Enid, who predeceased him—“To Mary Elizabeth Morgan’s first daughter: She has always known that black is beautiful.”

Time on the Cross was applauded initially but backlash soon followed.  Throughout the give-and-take of the often acrimonious debate Bob and Stan maintained their good cheer and fundamental optimism that the scholarly dispute was to everyone’s benefit.  “It was an exchange,” Bob wrote in Without Consent or Contract, “in which there were no losers.”  Without Consent clarified that the ultimate issues of slavery were moral and that confronting these linked the historical study of slavery to the moral issues of the modern American dilemma.  Slavery was an abomination not because it was economically moribund but because slaves were denied basic human rights.  The abomination was perpetuated across generations and was assisted by institutionalized racism after the Civil War.  The moral indictment of racial discrimination and segregation underlying the Civil Rights Movement forms a continuum with Fogel’s moral indictment of slavery.

Work on slave living standards suggested that adult height could be used an indicator of health and wellbeing.  Preliminary research, completed in 1978, with numerous co-authors showed deterioration in the heights and life expectation of whites in the mid-nineteenth century.  The finding led to an exploration of archival data that could help improve our understanding of health and mortality changes from 1650 to 1910.  That search unearthed the military records in the U.S. National Archives and Bob’s realization that longitudinal data for the first cohort to reach age 65 in the twentieth century could be created by combining wartime service, pension, and census records of Union Army soldiers.

The Union Army project illustrates Bob’s dictum: “If it’s worth doing, it’s worth spending ten years of your life doing it right.”  A project to collect the records of Union Army soldiers to study the effects of wartime and early life stress on older age mortality and morbidity, as well as the determinants of retirement, was proposed in 1986.  Funded in 1991 by the National Institute of Aging as Early Indicators of Later Work Levels, Disease, and Death, the project was renewed many times and was on-going at the time of Fogel’s death.  To date, the project has made available (at, the life histories of 39,000 white Union Army soldiers, 6,000 black Union Army soldiers, and detailed ward maps and ward statistics for selected cities.  The project is currently collecting the records of an additional 15,000 black Union Army soldiers and of Union Army soldiers who grew up in the large and unhealthy cities of the time and of those who lived to at least 95 years.

Findings from this research program on the health of men in the past led Bob to formulate a theory that he called “technophysio evolution,” described most recently in The Changing Body.   Adjustments to adverse conditions including a limited food supply, Bob argued, do not occur through crisis mortality but, rather, through chronic starvation producing a thin, stunted population.  The Bastille, according to Bob’s memorable image, was stormed by underweight Lilliputians.  Bob viewed the relationship between health and economic growth as an intergenerational one.  Nutritional status (a function of both nutritional intake and the demands made on that intake by work and disease) determines longevity and current work levels.  Work levels and intensity plus technology determine output.  Output in turn determines living standards and technological investments.  The standard of living in turn determines the nutritional status of the next generation.

Robert Fogel always made time in his full and demanding life for meaningful hobbies in woodworking and photography, both of which were pursued at highly skilled levels.  His pastimes and scholarship shared an essential feature.  An artful table has pleasing proportions, intricate detail and functionality.  A masterful photograph is a thoughtful, well-composed window on a larger world.  Robert Fogel’s outstanding attribute as a scholar was his ability to visualize and orchestrate the complete architecture of a project, each piece polished and in its proper place with the whole greater than the sum of the parts.  He could envision his research in final form long before any of the parts were complete.  In this he has no peers.

We were his students as his career was taking off and in full swing.  He then became famous, was awarded the Nobel, and had many demands on his time.  He also aged and developed various infirmities.  Bob always stressed the importance of family and his many students are like a family.  As he once said: “It is difficult to be orphaned at any age.”  We take solace and pleasure in the statement of a recent student that: “He was the best of scholars and a caring teacher.”  He was that—and more—for us.

References Cited

Floud, Roderick, Robert W. Fogel, Bernard Harris and Sok Chul Hong.  The Changing Body: Health, Nutrition, and Human Development in the Western World since 1700.  NBER Series on Long-term Factors in Economic Development.  Cambridge: Cambridge University Press, 2011.

Fogel, Robert W.  Railroads and American Economic Growth: Essays in Econometric History.  Baltimore: Johns Hopkins Press, 1964.

Fogel, Robert W. Without Consent or Contract: The Rise and Fall of American Slavery.  New York: W.W. Norton and Company, 1989.

Fogel, Robert W. and Stanley L. Engerman.  Time on the Cross: The Economics of American Negro Slavery.  Boston: Little Brown and Company, 1974.

Fogel, Robert W. and Stanley L. Engerman.  Time on the Cross: Evidence and Methods, a Supplement.  Boston: Little Brown and Company, 1974.

[1] These figures add the interregional and intraregional estimates and use a blow-up factor of four.  The intraregional estimates are those with new canals and road resurfacing.  The lower figure takes some land out of cultivation and the higher one does not.

Sweden – Economic Growth and Structural Change, 1800-2000

Lennart Schön, Lund University

This article presents an overview of Swedish economic growth performance internationally and statistically and an account of major trends in Swedish economic development during the nineteenth and twentieth centuries.1

Modern economic growth in Sweden took off in the middle of the nineteenth century and in international comparative terms Sweden has been rather successful during the past 150 years. This is largely thanks to the transformation of the economy and society from agrarian to industrial. Sweden is a small economy that has been open to foreign influences and highly dependent upon the world economy. Thus, successive structural changes have put their imprint upon modern economic growth.

Swedish Growth in International Perspective

The century-long period from the 1870s to the 1970s comprises the most successful part of Swedish industrialization and growth. On a per capita basis the Japanese economy performed equally well (see Table 1). The neighboring Scandinavian countries also grew rapidly but at a somewhat slower rate than Sweden. Growth in the rest of industrial Europe and in the U.S. was clearly outpaced. Growth in the entire world economy, as measured by Maddison, was even slower.

Table 1 Annual Economic Growth Rates per Capita in Industrial Nations and the World Economy, 1871-2005

Year Sweden Rest of Nordic Countries Rest of Western Europe United States Japan World Economy
1871/1875-1971/1975 2.4 2.0 1.7 1.8 2.4 1.5
1971/1975-2001/2005 1.7 2.2 1.9 2.0 2.2 1.6

Note: Rest of Nordic countries = Denmark, Finland and Norway. Rest of Western Europe = Austria, Belgium, Britain, France, Germany, Italy, the Netherlands, and Switzerland.

Source: Maddison (2006); Krantz/Schön (forthcoming 2007); World Bank, World Development Indicator 2000; Groningen Growth and Development Centre,

The Swedish advance in a global perspective is illustrated in Figure 1. In the mid-nineteenth century the Swedish average income level was close to the average global level (as measured by Maddison). In a European perspective Sweden was a rather poor country. By the 1970s, however, the Swedish income level was more than three times higher than the global average and among the highest in Europe.

Figure 1
Swedish GDP per Capita in Relation to World GDP per Capita, 1870-2004
(Nine year moving averages)
Swedish GDP per Capita in Relation to World GDP per Capita, 1870-2004
Sources: Maddison (2006); Krantz/Schön (forthcoming 2007).

Note. The annual variation in world production between Maddison’s benchmarks 1870, 1913 and 1950 is estimated from his supply of annual country series.

To some extent this was a catch-up story. Sweden was able to take advantage of technological and organizational advances made in Western Europe and North America. Furthermore, Scandinavian countries with resource bases such as Sweden and Finland had been rather disadvantaged as long as agriculture was the main source of income. The shift to industry expanded the resource base and industrial development – directed both to a growing domestic market but even more to a widening world market – became the main lever of growth from the late nineteenth century.

Catch-up is not the whole story, though. In many industrial areas Swedish companies took a position at the technological frontier from an early point in time. Thus, in certain sectors there was also forging ahead,2 quickening the pace of structural change in the industrializing economy. Furthermore, during a century of fairly rapid growth new conditions have arisen that have required profound adaptation and a renewal of entrepreneurial activity as well as of economic policies.

The slow down in Swedish growth from the 1970s may be considered in this perspective. While in most other countries growth from the 1970s fell only in relation to growth rates in the golden post-war ages, Swedish growth fell clearly below the historical long run growth trend. It also fell to a very low level internationally. The 1970s certainly meant the end to a number of successful growth trajectories in the industrial society. At the same time new growth forces appeared with the electronic revolution, as well as with the advance of a more service based economy. It may be the case that this structural change hit the Swedish economy harder than most other economies, at least of the industrial capitalist economies. Sweden was forced into a transformation of its industrial economy and of its political economy in the 1970s and the 1980s that was more profound than in most other Western economies.

A Statistical Overview, 1800-2000

Swedish economic development since 1800 may be divided into six periods with different growth trends, as well as different composition of growth forces.

Table 2 Annual Growth Rates in per Capita Production, Total Investments, Foreign Trade and Population in Sweden, 1800-2000

Period Per capita GDP Investments Foreign Trade Population
1800-1840 0.6 0.3 0.7 0.8
1840-1870 1.2 3.0 4.6 1.0
1870-1910 1.7 3.0 3.3 0.6
1910-1950 2.2 4.2 2.0 0.5
1950-1975 3.6 5.5 6.5 0.6
1975-2000 1.4 2.1 4.3 0.4
1800-2000 1.9 3.4 3.8 0.7

Source: Krantz/Schön (forthcoming 2007).

In the first decades of the nineteenth century the agricultural sector dominated and growth was slow in all aspects but in population. Still there was per capita growth, but to some extent this was a recovery from the low levels during the Napoleonic Wars. The acceleration during the next period around the mid-nineteenth century is marked in all aspects. Investments and foreign trade became very dynamic ingredients with the onset of industrialization. They were to remain so during the following periods as well. Up to the 1970s per capita growth rates increased for each successive period. In an international perspective it is most notable that per capita growth rates increased also in the interwar period, despite the slow down in foreign trade. The interwar period is crucial for the long run relative success of Swedish economic growth. The decisive culmination in the post-war period with high growth rates in investments and in foreign trade stands out as well, as the deceleration in all aspects in the late twentieth century.

An analysis in a traditional growth accounting framework gives a long term pattern with certain periodic similarities (see Table 3). Thus, total factor productivity growth has increased over time up to the 1970s, only to decrease to its long run level in the last decades. This deceleration in productivity growth may be looked upon either as a failure of the “Swedish Model” to accommodate new growth forces or as another case of the “productivity paradox” in lieu of the information technology revolution.3

Table 3 Total Factor Productivity (TFP) Growth and Relative Contribution of Capital, Labor and TFP to GDP Growth in Sweden, 1840-2000

Period TFP Growth Capital Labor TFP
1840-1870 0.4 55 27 18
1870-1910 0.7 50 18 32
1910-1950 1.0 39 24 37
1950-1975 2.1 45 7 48
1975-2000 1.0 44 1 55
1840-2000 1.1 45 16 39

Source: See Table 2.

In terms of contribution to overall growth, TFP has increased its share for every period. The TFP share was low in the 1840s but there was a very marked increase with the onset of modern industrialization from the 1870s. In relative terms TFP reached its highest level so far from the 1970s, thus indicating an increasing role of human capital, technology and knowledge in economic growth. The role of capital accumulation was markedly more pronounced in early industrialization with the build-up of a modern infrastructure and with urbanization, but still capital did retain much of its importance during the twentieth century. Thus its contribution to growth during the post-war Golden Ages was significant with very high levels of material investments. At the same time TFP growth culminated with positive structural shifts, as well as increased knowledge intensity complementary to the investments. Labor has in quantitative terms progressively reduced its role in economic growth. One should observe, however, the relatively large importance of labor in Swedish economic growth during the interwar period. This was largely due to demographic factors and to the employment situation that will be further commented upon.

In the first decades of the nineteenth century, growth was still led by the primary production of agriculture, accompanied by services and transport. Secondary production in manufacturing and building was, on the contrary, very stagnant. From the 1840s the industrial sector accelerated, increasingly supported by transport and communications, as well as by private services. The sectoral shift from agriculture to industry became more pronounced at the turn of the twentieth century when industry and transportation boomed, while agricultural growth decelerated into subsequent stagnation. In the post-war period the volume of services, both private and public, increased strongly, although still not outpacing industry. From the 1970s the focus shifted to private services and to transport and communications, indicating fundamental new prerequisites of growth.

Table 4 Growth Rates of Industrial Sectors, 1800-2000

Period Agriculture Industrial and Hand Transport and Communic. Building Private Services Public Services GDP
1800-1840 1.5 0.3 1.1 -0.1 1.4 1.5 1.3
1840-1870 2.1 3.7 1.8 2.4 2.7 0.8 2.3
1870-1910 1.0 5.0 3.9 1.3 2.7 1.0 2.3
1910-1950 0.0 3.5 4.9 1.4 2.2 2.2 2.7
1950-1975 0.4 5.1 4.4 3.8 4.3 4.0 4.3
1975-2000 -0.4 1.9 2.6 -0.8 2.2 0.2 1.8
1800-2000 0.9 3.8 3.7 1.8 2.7 1.7 2.6

Source: See Table 2.

Note: Private services are exclusive of dwelling services.

Growth and Transformation in the Agricultural Society of the Early Nineteenth Century

During the first half of the nineteenth century the agricultural sector and the rural society dominated the Swedish economy. Thus, more than three-quarters of the population were occupied in agriculture while roughly 90 percent lived in the countryside. Many non-agrarian activities such as the iron industry, the saw mill industry and many crafts as well as domestic, religious and military services were performed in rural areas. Although growth was slow, a number of structural and institutional changes occurred that paved the way for future modernization.

Most important was the transformation of agriculture. From the late eighteenth century commercialization of the primary sector intensified. Particularly during the Napoleonic Wars, the domestic market for food stuffs widened. The population increase in combination with the temporary decrease in imports stimulated enclosures and reclamation of land, the introduction of new crops and new methods and above all it stimulated a greater degree of market orientation. In the decades after the war the traditional Swedish trade deficit in grain even shifted to a trade surplus with an increasing exportation of oats, primarily to Britain.

Concomitant with the agricultural transformation were a number of infrastructural and institutional changes. Domestic transportation costs were reduced through investments in canals and roads. Trade of agricultural goods was liberalized, reducing transaction costs and integrating the domestic market even further. Trading companies became more effective in attracting agricultural surpluses for more distant markets. In support of the agricultural sector new means of information were introduced by, for example, agricultural societies that published periodicals on innovative methods and on market trends. Mortgage societies were established to supply agriculture with long term capital for investments that in turn intensified the commercialization of production.

All these elements meant a profound institutional change in the sense that the price mechanism became much more effective in directing human behavior. Furthermore, a greater interest in information and in the main instrument of information, namely literacy, was infused. Traditionally, popular literacy had been upheld by the church, mainly devoted to knowledge of the primary Lutheran texts. In the new economic environment, literacy was secularized and transformed into a more functional literacy marked by the advent of schools for public education in the 1840s.

The Breakthrough of Modern Economic Growth in the Mid-nineteenth Century

In the decades around the middle of the nineteenth century new dynamic forces appeared that accelerated growth. Most notably foreign trade expanded by leaps and bounds in the 1850s and 1860s. With new export sectors, industrial investments increased. Furthermore, railways became the most prominent component of a new infrastructure and with this construction a new component in Swedish growth was introduced, heavy capital imports.

The upswing in industrial growth in Western Europe during the 1850s, in combination with demand induced through the Crimean War, led to a particularly strong expansion in Swedish exports with sharp price increases for three staple goods – bar iron, wood and oats. The charcoal-based Swedish bar iron had been the traditional export good and had completely dominated Swedish exports until mid-nineteenth century. Bar iron met, however, increasingly strong competition from British and continental iron and steel industries and Swedish exports had stagnated in the first half of the nineteenth century. The upswing in international demand, following the diffusion of industrialization and railway construction, gave an impetus to the modernization of Swedish steel production in the following decades.

The saw mill industry was a really new export industry that grew dramatically in the 1850s and 1860s. Up until this time, the vast forests in Sweden had been regarded mainly as a fuel resource for the iron industry and for household heating and local residential construction. With sharp price increases on the Western European market from the 1840s and 1850s, the resources of the sparsely populated northern part of Sweden suddenly became valuable. A formidable explosion of saw mill construction at the mouths of the rivers along the northern coastline followed. Within a few decades Swedish merchants, as well as Norwegian, German, British and Dutch merchants, became saw mill owners running large-scale capitalist enterprises at the fringe of the European civilization.

Less dramatic but equally important was the sudden expansion of Swedish oat exports. The market for oats appeared mainly in Britain, where short-distance transportation in rapidly growing urban centers increased the fleet of horses. Swedish oats became an important energy resource during the decades around the mid-nineteenth century. In Sweden this had a special significance since oats could be cultivated on rather barren and marginal soils and Sweden was richly endowed with such soils. Thus, the market for oats with strongly increasing prices stimulated further the commercialization of agriculture and the diffusion of new methods. It was furthermore so since oats for the market were a substitute for local flax production – also thriving on barren soils – while domestic linen was increasingly supplanted by factory-produced cotton goods.

The Swedish economy was able to respond to the impetus from Western Europe during these decades, to diffuse the new influences in the economy and to integrate them in its development very successfully. The barriers to change seem to have been weak. This is partly explained by the prior transformation of agriculture and the evolution of market institutions in the rural economy. People reacted to the price mechanism. New social classes of commercial peasants, capitalists and wage laborers had emerged in an era of domestic market expansion, with increased regional specialization, and population increase.

The composition of export goods also contributed to the diffusion of participation and to the diffusion of export income. Iron, wood and oats meant both a regional and a social distribution. The value of prior marginal resources such as soils in the south and forests in the north was inflated. The technology was simple and labor intensive in industry, forestry, agriculture and transportation. The demand for unskilled labor increased strongly that was to put an imprint upon Swedish wage development in the second half of the nineteenth century. Commercial houses and industrial companies made profits but export income was distributed to many segments of the population.

The integration of the Swedish economy was further enforced through initiatives taken by the State. The parliament decision in the 1850s to construct the railway trunk lines meant, first, a more direct involvement by the State in the development of a modern infrastructure and, second, new principles of finance since the State had to rely upon capital imports. At the same time markets for goods, labor and capital were liberalized and integration both within Sweden and with the world market deepened. The Swedish adoption of the Gold Standard in 1873 put a final stamp on this institutional development.

A Second Industrial Revolution around 1900

In the late nineteenth century, particularly in the 1880s, international competition became fiercer for agriculture and early industrial branches. The integration of world markets led to falling prices and stagnation in the demand for Swedish staple goods such as iron, sawn wood and oats. Profits were squeezed and expansion thwarted. On the other hand there arose new markets. Increasing wages intensified mechanization both in agriculture and in industry. The demand increased for more sophisticated machinery equipment. At the same time consumer demand shifted towards better foodstuff – such as milk, butter and meat – and towards more fabricated industrial goods.

The decades around the turn of the twentieth century meant a profound structural change in the composition of Swedish industrial expansion that was crucial for long term growth. New and more sophisticated enterprises were founded and expanded particularly from the 1890s, in the upswing after the Baring Crisis.

The new enterprises were closely related to the so called Second Industrial Revolution in which scientific knowledge and more complex engineering skills were main components. The electrical motor became especially important in Sweden. A new development block was created around this innovation that combined engineering skills in companies such as ASEA (later ABB) with a large demand in energy-intensive processes and with the large supply of hydropower in Sweden.4 Financing the rapid development of this large block engaged commercial banks, knitting closer ties between financial capital and industry. The State, once again, engaged itself in infrastructural development in support of electrification, still resorting to heavy capital imports.

A number of innovative industries were founded in this period – all related to increased demand for mechanization and engineering skills. Companies such as AGA, ASEA, Ericsson, Separator (AlfaLaval) and SKF have been labeled “enterprises of genius” and all are represented with renowned inventors and innovators. This was, of course, not an entirely Swedish phenomenon. These branches developed simultaneously on the Continent, particularly in nearby Germany and in the U.S. Knowledge and innovative stimulus was diffused among these economies. The question is rather why this new development became so strong in Sweden so that new industries within a relatively short period of time were able to supplant old resource-based industries as main driving forces of industrialization.

Traditions of engineering skills were certainly important, developed in old heavy industrial branches such as iron and steel industries and stimulated further by State initiatives such as railway construction or, more directly, the founding of the Royal Institute of Technology. But apart from that the economic development in the second half of the nineteenth century fundamentally changed relative factor prices and the profitability of allocation of resources in different lines of production.

The relative increase in the wages of unskilled labor had been stimulated by the composition of early exports in Sweden. This was much reinforced by two components in the further development – emigration and capital imports.

Within approximately the same period, 1850-1910, the Swedish economy received a huge amount of capital mainly from Germany and France, while delivering an equally huge amount of labor to primarily the U.S. Thus, Swedish relative factor prices changed dramatically. Swedish interest rates remained at rather high levels compared to leading European countries until 1910, due to a continuous large demand for capital in Sweden, but relative wages rose persistently (see Table 5). As in the rest of Scandinavia, wage increases were much stronger than GDP growth in Sweden indicating a shift in income distribution in favor of labor, particularly in favor of unskilled labor, during this period of increased world market integration.

Table 5 Annual Increase in Real Wages of Unskilled Labor and Annual GDP Growth per Capita, 1870-1910

Country Annual real wage increase, 1870-1910 Annual GDP growth per capita, 1870-1910
Sweden 2.8 1.7
Denmark and Norway 2.6 1.3
France, Germany and Great Britain 1.1 1.2
United States 1.1 1.6

Sources: Wages from Williamson (1995); GDP growth see Table 1.

Relative profitability fell in traditional industries, which exploited rich natural resources and cheap labor, while more sophisticated industries were favored. But the causality runs both ways. Had this structural shift with the growth of new and more profitable industries not occurred, the Swedish economy would not have been able to sustain the wage increase.5

Accelerated Growth in the War-stricken Period, 1910-1950

The most notable feature of long term Swedish growth is the acceleration in growth rates during the period 1910-1950, which in Europe at large was full of problems and catastrophes.6 Thus, Swedish per capita production grew at 2.2 percent annually while growth in the rest of Scandinavia was somewhat below 2 percent and in the rest of Europe hovered at 1 percent. The Swedish acceleration was based mainly on three pillars.

First, the structure created at the end of the nineteenth century was very viable, with considerable long term growth potential. It consisted of new industries and new infrastructures that involved industrialists and financial capitalists, as well as public sector support. It also involved industries meeting a relatively strong demand in war times, as well as in the interwar period, both domestically and abroad.

Second, the First World War meant an immense financial bonus to the Swedish market. A huge export surplus at inflated prices during the war led to the domestication of the Swedish national debt. This in turn further capitalized the Swedish financial market, lowering interest rates and ameliorating sequential innovative activity in industry. A domestic money market arose that provided the State with new instruments for economic policy that were to become important for the implementation of the new social democratic “Keynesian” policies of the 1930s.

Third, demographic development favored the Swedish economy in this period. The share of the economically active age group 15-64 grew substantially. This was due partly to the fact that prior emigration had sized down cohorts that now would have become old age pensioners. Comparatively low mortality of young people during the 1910s, as well as an end to mass emigration further enhanced the share of the active population. Both the labor market and domestic demand was stimulated in particular during the 1930s when the household forming age group of 25-30 years increased.

The augmented labor supply would have increased unemployment had it not been combined with the richer supply of capital and innovative industrial development that met elastic demand both domestically and in Europe.

Thus, a richer supply of both capital and labor stimulated the domestic market in a period when international market integration deteriorated. Above all it stimulated the development of mass production of consumption goods based upon the innovations of the Second Industrial Revolution. Significant new enterprises that emanated from the interwar period were very much related to the new logic of the industrial society, such as Volvo, SAAB, Electrolux, Tetra Pak and IKEA.

The Golden Age of Growth, 1950-1975

The Swedish economy was clearly part of the European Golden Age of growth, although Swedish acceleration from the 1950s was less pronounced than in the rest of Western Europe, which to a much larger extent had been plagued by wars and crises.7 The Swedish post-war period was characterized primarily by two phenomena – the full fruition of development blocks based upon the great innovations of the late nineteenth century (the electrical motor and the combustion engine) and the cementation of the “Swedish Model” for the welfare state. These two phenomena were highly complementary.

The Swedish Model had basically two components. One was a greater public responsibility for social security and for the creation and preservation of human capital. This led to a rapid increase in the supply of public services in the realms of education, health and children’s day care as well as to increases in social security programs and in public savings for transfers to pensioners program. The consequence was high taxation. The other component was a regulation of labor and capital markets. This was the most ingenious part of the model, constructed to sustain growth in the industrial society and to increase equality in combination with the social security program and taxation.

The labor market program was the result of negotiations between trade unions and the employers’ organization. It was labeled “solidaristic wage policy” with two elements. One was to achieve equal wages for equal work, regardless of individual companies’ ability to pay. The other element was to raise the wage level in low paid areas and thus to compress the wage distribution. The aim of the program was actually to increase the speed in the structural rationalization of industries and to eliminate less productive companies and branches. Labor should be transferred to the most productive export-oriented sectors. At the same time income should be distributed more equally. A drawback of the solidaristic wage policy from an egalitarian point of view was that profits soared in the productive sectors since wage increases were held back. However, capital market regulations hindered the ability of high profits to be converted into very high incomes for shareholders. Profits were taxed very low if they were converted into further investments within the company (the timing in the use of the funds was controlled by the State in its stabilization policy) but taxed heavily if distributed to share holders. The result was that investments within existing profitable companies were supported and actually subsidized while the mobility of capital dwindled and the activity at the stock market fell.

As long as the export sectors grew, the program worked well.8 Companies founded in the late nineteenth century and in the interwar period developed into successful multinationals in engineering with machinery, auto industries and shipbuilding, as well as in resource-based industries of steel and paper. The expansion of the export sector was the main force behind the high growth rates and the productivity increases but the sector was strongly supported by public investments or publicly subsidized investments in infrastructure and residential construction.

Hence, during the Golden Age of growth the development blocks around electrification and motorization matured in a broad modernization of the society, where mass consumption and mass production was supported by social programs, by investment programs and by labor market policy.

Crisis and Restructuring from the 1970s

In the 1970s and early 1980s a number of industries – such as steel works, pulp and paper, shipbuilding, and mechanical engineering – ran into crisis. New global competition, changing consumer behavior and profound innovative renewal, especially in microelectronics, made some of the industrial pillars of the Swedish Model crumble. At the same time the disadvantages of the old model became more apparent. It put obstacles to flexibility and to entrepreneurial initiatives and it reduced individual incentives for mobility. Thus, while the Swedish Model did foster rationalization of existing industries well adapted to the post-war period, it did not support more profound transformation of the economy.

One should not exaggerate the obstacles to transformation, though. The Swedish economy was still very open in the market for goods and many services, and the pressure to transform increased rapidly. During the 1980s a far-reaching structural change within industry as well as in economic policy took place, engaging both private and public actors. Shipbuilding was almost completely discontinued, pulp industries were integrated into modernized paper works, the steel industry was concentrated and specialized, and the mechanical engineering was digitalized. New and more knowledge-intensive growth industries appeared in the 1980s, such as IT-based telecommunication, pharmaceutical industries, and biotechnology, as well as new service industries.

During the 1980s some of the constituent components of the Swedish model were weakened or eliminated. Centralized negotiations and solidaristic wage policy disappeared. Regulations in the capital market were dismantled under the pressure of increasing international capital flows simultaneously with a forceful revival of the stock market. The expansion of public sector services came to an end and the taxation system was reformed with a reduction of marginal tax rates. Thus, Swedish economic policy and welfare system became more adapted to the main European level that facilitated the Swedish application of membership and final entrance into the European Union in 1995.

It is also clear that the period from the 1970s to the early twenty-first century comprise two growth trends, before and after 1990 respectively. During the 1970s and 1980s, growth in Sweden was very slow and marked by the great structural problems that the Swedish economy had to cope with. The slow growth prior to 1990 does not signify stagnation in a real sense, but rather the transformation of industrial structures and the reformulation of economic policy, which did not immediately result in a speed up of growth but rather in imbalances and bottle necks that took years to eliminate. From the 1990s up to 2005 Swedish growth accelerated quite forcefully in comparison with most Western economies.9 Thus, the 1980s may be considered as a Swedish case of “the productivity paradox,” with innovative renewal but with a delayed acceleration of productivity and growth from the 1990s – although a delayed productivity effect of more profound transformation and radical innovative behavior is not paradoxical.

Table 6 Annual Growth Rates per Capita, 1971-2005

Period Sweden Rest of Nordic Countries Rest of Western Europe United States World Economy
1971/1975-1991/1995 1.2 2.1 1.8 1.6 1.4
1991/1995-2001/2005 2.4 2.5 1.7 2.1 2.1

Sources: See Table 1.

The recent acceleration in growth may also indicate that some of the basic traits from early industrialization still pertain to the Swedish economy – an international attitude in a small open economy fosters transformation and adaptation of human skills to new circumstances as a major force behind long term growth.


Abramovitz, Moses. “Catching Up, Forging Ahead and Falling Behind.” Journal of Economic History 46, no. 2 (1986): 385-406.

Dahmén, Erik. “Development Blocks in Industrial Economics.” Scandinavian Economic History Review 36 (1988): 3-14.

David, Paul A. “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox.” American Economic Review 80, no. 2 (1980): 355-61.

Eichengreen, Barry. “Institutions and Economic Growth: Europe after World War II.” In Economic Growth in Europe since 1945, edited by Nicholas Crafts and Gianni Toniolo. New York: Cambridge University Press, 1996.

Krantz, Olle and Lennart Schön. Swedish Historical National Accounts, 1800-2000. Lund: Almqvist and Wiksell International (forthcoming, 2007).

Maddison, Angus. The World Economy, Volumes 1 and 2. Paris: OECD (2006).

Schön, Lennart. “Development Blocks and Transformation Pressure in a Macro-Economic Perspective: A Model of Long-Cyclical Change.” Skandinaviska Enskilda Banken Quarterly Review 20, no. 3-4 (1991): 67-76.

Schön, Lennart. “External and Internal Factors in Swedish Industrialization.” Scandinavian Economic History Review 45, no. 3 (1997): 209-223.

Schön, Lennart. En modern svensk ekonomisk historia: Tillväxt och omvandling under två sekel (A Modern Swedish Economic History: Growth and Transformation in Two Centuries). Stockholm: SNS (2000).

Schön, Lennart. “Total Factor Productivity in Swedish Manufacturing in the Period 1870-2000.” In Exploring Economic Growth: Essays in Measurement and Analysis: A Festschrift for Riitta Hjerppe on Her Sixtieth Birthday, edited by S. Heikkinen and J.L. van Zanden. Amsterdam: Aksant, 2004.

Schön, Lennart. “Swedish Industrialization 1870-1930 and the Heckscher-Ohlin Theory.” In Eli Heckscher, International Trade, and Economic History, edited by Ronald Findlay et al. Cambridge, MA: MIT Press (2006).

Svennilson, Ingvar. Growth and Stagnation in the European Economy. Geneva: United Nations Economic Commission for Europe, 1954.

Temin, Peter. “The Golden Age of European Growth Reconsidered.” European Review of Economic History 6, no. 1 (2002): 3-22.

Williamson, Jeffrey G. “The Evolution of Global Labor Markets since 1830: Background Evidence and Hypotheses.” Explorations in Economic History 32, no. 2 (1995): 141-96.

Citation: Schön, Lennart. “Sweden – Economic Growth and Structural Change, 1800-2000”. EH.Net Encyclopedia, edited by Robert Whaples. February 10, 2008. URL

An Economic History of Patent Institutions

B. Zorina Khan, Bowdoin College


Such scholars as Max Weber and Douglass North have suggested that intellectual property systems had an important impact on the course of economic development. However, questions from other eras are still current today, ranging from whether patents and copyrights constitute optimal policies toward intellectual inventions and their philosophical rationale to the growing concerns of international political economy. Throughout their history, patent and copyright regimes have confronted and accommodated technological innovations that were no less significant and contentious for their time than those of the twenty-first century. An economist from the nineteenth century would have been equally familiar with considerations about whether uniformity in intellectual property rights across countries harmed or benefited global welfare and whether piracy might be to the advantage of developing countries. The nineteenth and early twentieth centuries in particular witnessed considerable variation in the intellectual property policies that individual countries implemented, and this allows economic historians to determine the consequences of different rules and standards.

This article outlines crucial developments in the patent policies of Europe, the United States, and follower countries. The final section discusses the harmonization of international patent laws that occurred after the middle of the nineteenth century.


The British Patent System

The grant of exclusive property rights vested in patents developed from medieval guild practices in Europe. Britain in particular is noted for the establishment of a patent system which has been in continuous operation for a longer period than any other in the world. English monarchs frequently used patents to reward favorites with privileges, such as monopolies over trade that increased the retail prices of commodities. It was not until the seventeenth century that patents were associated entirely with awards to inventors, when Section 6 of the Statute of Monopolies (21 Jac. I. C. 3, 1623, implemented in 1624) repealed the practice of royal monopoly grants to all except patentees of inventions. The Statute of Monopolies allowed patent rights of fourteen years for “the sole making or working of any manner of new manufacture within this realm to the first and true inventor…” Importers of foreign discoveries were allowed to obtain domestic patent protection in their own right.

The British patent system established significant barriers in the form of prohibitively high costs that limited access to property rights in invention to a privileged few. Patent fees for England alone amounted to £100-£120 ($585) or approximately four times per capita income in 1860. The fee for a patent that also covered Scotland and Ireland could cost as much as £350 pounds ($1,680). Adding a co-inventor was likely to increase the costs by another £24. Patents could be extended only by a private Act of Parliament, which required political influence, and extensions could cost as much as £700. These constraints favored the elite class of those with wealth, political connections or exceptional technical qualifications, and consciously created disincentives for inventors from humble backgrounds. Patent fees provided an important source of revenues for the Crown and its employees, and created a class of administrators who had strong incentives to block proposed reforms.

In addition to the monetary costs, complicated administrative procedures that inventors had to follow implied that transactions costs were also high. Patent applications for England alone had to pass through seven offices, from the Home Secretary to the Lord Chancellor, and twice required the signature of the Sovereign. If the patent were extended to Scotland and Ireland it was necessary to negotiate another five offices in each country. The cumbersome process of patent applications (variously described as “mediaeval” and “fantastical”) afforded ample material for satire, but obviously imposed severe constraints on the ordinary inventor who wished to obtain protection for his discovery. These features testify to the much higher monetary and transactions costs, in both absolute and relative terms, of obtaining property rights to inventions in England in comparison to the United States. Such costs essentially restricted the use of the patent system to inventions of high value and to applicants who already possessed or could raise sufficient capital to apply for the patent. The complicated system also inhibited the diffusion of information and made it difficult, if not impossible, for inventors outside of London to readily conduct patent searches. Patent specifications were open to public inspection on payment of a fee, but until 1852 they were not officially printed, published or indexed. Since the patent could be filed in any of three offices in Chancery, searches of the prior art involved much time and inconvenience. Potential patentees were well advised to obtain the help of a patent agent to aid in negotiating the numerous steps and offices that were required for pursuit of the application in London.

In the second half of the eighteenth century, nation-wide lobbies of manufacturers and patentees expressed dissatisfaction with the operation of the British patent system. However, it was not until after the Crystal Palace Exhibition in 1851 that their concerns were finally addressed, in an effort to meet the burgeoning competition from the United States. In 1852 the efforts of numerous societies and of individual engineers, inventors and manufacturers over many decades were finally rewarded. Parliament approved the Patent Law Amendment Act, which authorized the first major adjustment of the system in two centuries. The new patent statutes incorporated features that drew on testimonials to the superior functioning of the American patent regime. Significant changes in the direction of the American system included lower fees and costs, and the application procedures were rationalized into a single Office of the Commissioners of Patents for Inventions, or “Great Seal Patent Office.”

The 1852 patent reform bills included calls for a U.S.-style examination system but this was amended in the House of Commons and the measure was not included in the final version. Opponents were reluctant to vest examiners with the necessary discretionary power, and pragmatic observers pointed to the shortage of a cadre of officials with the required expertise. The law established a renewal system that required the payment of fees in installments if the patentee wished to maintain the patent for the full term. Patentees initially paid £25 and later installments of £50 (after three years) and £100 (after seven years) to maintain the patent for a full term of fourteen years. Despite the relatively low number of patents granted in England, between 1852 and 1880 the patent office still made a profit of over £2 million. Provision was made for the printing and publication of the patent records. The 1852 reforms undoubtedly instituted improvements over the former opaque procedures, and the lower fees had an immediate impact. Nevertheless, the system retained many of the former features that had implied that patents were in effect viewed as privileges rather than merited rights, and only temporarily abated expressions of dissatisfaction.

One source of dissatisfaction that endured until the end of the nineteenth century was the state of the common law regarding patents. At least partially in reaction to a history of abuse of patent privileges, patents were widely viewed as monopolies that restricted community rights, and thus to be carefully monitored and narrowly construed. Second, British patents were granted “by the grace of the Crown” and therefore were subject to any restrictions that the government cared to impose. According to the statutes, as a matter of national expediency, patents were to be granted if “they be not contrary to the law, nor mischievous to the State, by raising prices of commodities at home, or to the hurt of trade, or generally inconvenient.” The Crown possessed the ability to revoke any patents that were deemed inconvenient or contrary to public policy. After 1855, the government could also appeal to a need for official secrecy to prohibit the publication of patent specifications in order to protect national security and welfare. Moreover, the state could commandeer a patentee’s invention without compensation or consent, although in some cases the patentee was paid a royalty.

Policies towards patent assignments and trade in intellectual property rights also constrained the market for inventions. Ever vigilant to protect an unsuspecting public from fraudulent financial schemes on the scale of the South Sea Bubble, ownership of patent rights was limited to five investors (later extended to twelve). Nevertheless, the law did not offer any relief to the purchaser of an invalid or worthless patent, so potential purchasers were well advised to engage in extensive searches before entering into contracts. When coupled with the lack of assurance inherent in a registration system, the purchase of a patent right involved a substantive amount of risk and high transactions costs — all indicative of a speculative instrument. It is therefore not surprising that the market for assignments and licenses seems to have been quite limited, and even in the year after the 1852 reforms only 273 assignments were recorded.

In 1883 new legislation introduced procedures that were somewhat simpler, with fewer steps. The fees fell to £4 for the initial term of four years, and the remaining £150 could be paid in annual increments. For the first time, applications could be forwarded to the Patent Office through the post office. This statute introduced opposition proceedings, which enabled interested parties to contest the proposed patent within two months of the filing of the patent specifications. Compulsory licenses were introduced in 1883 (and strengthened in 1919 as “licenses of right”) for fear that foreign inventors might injure British industry by refusing to grant other manufacturers the right to use their patent. The 1883 act provided for the employment of “examiners” but their activity was limited to ensuring that the material was patentable and properly described. Indeed, it was not until 1902 that the British system included an examination for novelty, and even then the process was not regarded as stringent as in other countries. Many new provisions were designed to thwart foreign competition. Until 1907 patentees who manufactured abroad were required to also make the patented product in Britain. Between 1919 and 1949 chemical products were excluded from patent protection to counter the threat posed by the superior German chemical industry. Licenses of right enabled British manufacturers to compel foreign patentees to permit the use of their patents on pharmaceuticals and food products.

In sum, changes in the British patent system were initially unforthcoming despite numerous calls for change. Ultimately, the realization that England’s early industrial and technological supremacy was threatened by the United States and other nations in Europe led to a slow process of revisions that lasted well into the twentieth century. One commentator summed up the series of developments by declaring that the British patent system at the time of writing (1967) remained essentially “a modified version of a pre-industrial economic institution.”

The French Patent System

Early French policies towards inventions and innovations in the eighteenth century were based on an extensive but somewhat arbitrary array of rewards and incentives. During this period inventors or introducers of inventions could benefit from titles, pensions that sometimes extended to spouses and offspring, loans (some interest-free), lump-sum grants, bounties or subsidies for production, exemptions from taxes, or monopoly grants in the form of exclusive privileges. This complex network of state policies towards inventors and their inventions was revised but not revoked after the outbreak of the French Revolution.

The modern French patent system was established according to the laws of 1791 (amended in 1800) and 1844. Patentees filed through a simple registration system without any need to specify what was new about their claim, and could persist in obtaining the grant even if warned that the patent was likely to be legally invalid. On each patent document the following caveat was printed: “The government, in granting a patent without prior examination, does not in any manner guarantee either the priority, merit or success of an invention.” The inventor decided whether to obtain a patent for a period of five, ten or fifteen years, and the term could only be extended through legislative action. Protection extended to all methods and manufactured articles, but excluded theoretical or scientific discoveries without practical application, financial methods, medicines, and items that could be covered by copyright.

The 1791 statute stipulated patent fees that were costly, ranging from 300 livres through 1500 livres, based on the declared term of the patent. The 1844 statute maintained this policy since fees were set at 500 francs ($100) for a five year patent, 1000 francs for a 10 year patent and 1500 for a patent of fifteen years, payable in annual installments. In an obvious attempt to limit international diffusion of French discoveries, until 1844 patents were voided if the inventor attempted to obtain a patent overseas on the same invention. On the other hand, the first introducer of an invention covered by a foreign patent would enjoy the same “natural rights” as the patentee of an original invention or improvement. Patentees had to put the invention into practice within two years from the initial grant, or face a tribunal which had the power to repeal the patent, unless the patentee could point to unforeseen events which had prevented his complying with the provisions of the law. The rights of patentees were also restricted if the invention related to items that were controlled by the French government, such as printing presses and firearms.

In return for the limited monopoly right, the patentee was expected to describe the invention in such terms that a workman skilled in the arts could replicate the invention and this information was expected to be made public. However, no provision was made for the publication or diffusion of these descriptions. At least until the law of April 7 1902, specifications were only available in manuscript form in the office in which they had originally been lodged, and printed information was limited to brief titles in patent indexes. The attempt to obtain information on the prior art was also inhibited by restrictions placed on access: viewers had to state their motives; foreigners had to be assisted by French attorneys; and no extract from the manuscript could be copied until the patent had expired.

The state remained involved in the discretionary promotion of invention and innovation through policies beyond the granting of patents. In the first place, the patent statutes did not limit their offer of potential appropriation of returns only to property rights vested in patents. The inventor of a discovery of proven utility could choose between a patent or making a gift of the invention to the nation in exchange for an award from funds that were set aside for the encouragement of industry. Second, institutions such as the Société d’encouragement pour l’industrie nationale awarded a number of medals each year to stimulate new discoveries in areas they considered to be worth pursuing, and also to reward deserving inventors and manufacturers. Third, the award of assistance and pensions to inventors and their families continued well into the nineteenth century. Fourth, at times the Society purchased patent rights and turned the invention over into the public domain.

The basic principles of the modern French patent system were evident in the early French statutes and were retained in later revisions. Since France during the ancien régime was likely the first country to introduce systematic examinations of applications for privileges, it is somewhat ironic that commentators point to the retention of registration without prior examination as the defining feature of the “French system” until 1978. In 1910 fees remained high, although somewhat lower in real terms, at one hundred francs per year. Working requirements were still in place, and patentees were not allowed to satisfy the requirement by importing the article even if the patentee had manufactured it in another European country. However, the requirement was waived if the patentee could persuade the tribunal that the patent was not worked because of unavoidable circumstances.

Similar problems were evident in the market for patent rights. Contracts for patent assignments were filed in the office of the Prefect for the district, but since there was no central source of information it was difficult to trace the records for specific inventions. The annual fees for the entire term of the patent had to be paid in advance if the patent was assigned to a second party. Like patents themselves, assignments and licenses were issued with a caveat emptor clause. This was partially due to the nature of patent property under a registration system, and partially to the uncertainties of legal jurisprudence in this area. For both buyer and seller, the uncertainties associated with the exchange likely reduced the net expected value of trade.

The Spanish Patent System

French patent laws were adopted in its colonies, but also diffused to other countries through its influence on Spain’s system following the Spanish Decree of 1811. The Spanish experience during the nineteenth century is instructive since this country experienced lower rates and levels of economic development than the early industrializers. Like its European neighbors, early Spanish rules and institutions were vested in privileges which had lasting effects that could be detected even in the later period. The per capita rate of patenting in Spain was lower than other major European countries, and foreigners filed the majority of patented inventions. Between 1759 and 1878, roughly one half of all grants were to citizens of other countries, notably France and (to a lesser extent) Britain. Thus, the transfer of foreign technology was a major concern in the political economy of Spain.

This dependence on foreign technologies was reflected in the structure of the Spanish patent system, which permitted patents of introduction as well as patents for invention. Patents of introduction were granted to entrepreneurs who wished to produce foreign technologies that were new to Spain, with no requirement of claims to being the true inventor. Thus, the sole objective of these instruments was to enhance innovation and production in Spain. Since the owners of introduction patents could not prevent third parties from importing similar machines from abroad, they also had an incentive to maintain reasonable pricing structures. Introduction patents had a term of only five years, with a cost of 3000 reales, whereas the fees of patents for invention varied from 1000 reales for five years, 3000 reales for ten years, and 6000 reales for a term of fifteen years. Patentees were required to work the patent within one year, and about a quarter of patents granted between 1826 and 1878 were actually implemented. Since patents of introduction had a brief term, they encouraged the production of items with high expected profits and a quick payback period, after which monopoly rights expired, and the country could benefit from its diffusion.

The German Patent System

The German patent system was influenced by developments in the United States, and itself influenced legislation in Argentina, Austria, Brazil, Denmark, Finland, Holland, Norway, Poland, Russia and Sweden. The German Empire was founded in 1871, and in the first six years each state adopted its own policies. Alsace-Lorraine favored a French-style system, whereas others such as Hamburg and Bremen did not offer patent protection. However, after strong lobbying by supporters of both sides of the debate regarding the merits of patent regimes, Germany passed a unified national Patent Act of 1877.

The 1877 statute created a centralized administration for the grant of a federal patent for original inventions. Industrial entrepreneurs succeeded in their objective of creating a “first to file” system, so patents were granted to the first applicant rather than to the “first and true inventor,” but in 1936 the National Socialists introduced a first to invent system. Applications were examined by examiners in the Patent Office who were expert in their field. During the eight weeks before the grant, patent applications were open to the public and an opposition could be filed denying the validity of the patent. German patent fees were deliberately high to eliminate protection for trivial inventions, with a renewal system that required payment of 30 marks for the first year, 50 marks for the second year, 100 marks for the third, and 50 marks annually after the third year. In 1923 the patent term was extended from fifteen years to eighteen years.

German patent policies encouraged diffusion, innovation and growth in specific industries with a view to fostering economic development. Patents could not be obtained for food products, pharmaceuticals or chemical products, although the process through which such items were produced could be protected. It has been argued that the lack of restrictions on the use of innovations and the incentives to patent around existing processes spurred productivity and diffusion in these industries. The authorities further ensured the diffusion of patent information by publishing claims and specification before they were granted. The German patent system also facilitated the use of inventions by firms, with the early application of a “work for hire” doctrine that allowed enterprises access to the rights and benefits of inventions of employees.

Although the German system was close to the American patent system, it was in other ways more stringent, resulting in patent grants that were lower in number, but likely higher in average value. The patent examination process required that the patent should be new, nonobvious, and also capable of producing greater efficiency. As in the United States, once granted, the courts adopted an extremely liberal attitude in interpreting and enforcing existing patent rights. Penalties for willful infringement included not only fines, but also the possibility of imprisonment. The grant of a patent could be revoked after the first three years if the patent was not worked, if the owner refused to grant licenses for the use of an invention that was deemed in the public interest, or if the invention was primarily being exploited outside of Germany. However, in most cases, a compulsory license was regarded as adequate.

After 1891 a parallel and weaker version of patent protection could be obtained through a gebrauchsmuster or utility patent (sometimes called a petty patent), which was granted through a registration system. Patent protection was available for inventions that could be represented by drawings or models with only a slight degree of novelty, and for a limited term of three years (renewable once for a total life of six years). About twice as many utility patents as examined patents were granted early in the 1930s. Patent protection based on co-existing systems of registration and examination appears to have served distinct but complementary purposes. Remedies for infringement of utility patents also included fines and imprisonment.

Other European Patent Systems

Very few developed countries would now seriously consider eliminating statutory protection for inventions, but in the second half of the nineteenth century the “patent controversy” in Europe pitted advocates of patent rights against an effective abolitionist movement. For a short period, the abolitionists were strong enough to obtain support for dismantling patent systems in a number of European countries. In 1863 the Congress of German Economists declared “patents of invention are injurious to common welfare;” and the movement achieved its greatest victory in Holland, which repealed its patent legislation in 1869. The Swiss cantons did not adopt patent protection until 1888, with an extension in the scope of coverage in 1907. The abolitionists based their arguments on the benefits of free trade and competition, and viewed patents as part of an anticompetitive and protectionist strategy analogous to tariffs on imports. Instead of state-sponsored monopoly awards, they argued, inventors could be rewarded by alternative policies, such as stipends from the government, payments from private industry or associations formed for that purpose, or simply through the lead time that the first inventor acquired over competitors by virtue of his prior knowledge.

According to one authority, the Netherlands eventually reinstated its patent system in 1912 and Switzerland introduced patent laws in 1888 largely because of a keen sense of morality, national pride and international pressure to do so. The appeal to “morality” as an explanatory factor is incapable of explaining the timing and nature of changes in strategies. Nineteenth-century institutions were not exogenous and their introduction or revisions generally reflected the outcome of a self-interested balancing of costs and benefits. The Netherlands and Switzerland were initially able to benefit from their ability to free-ride on the investments that other countries had made in technological advances. As for the cost of lower incentives for discoveries by domestic inventors, the Netherlands was never vaunted as a leader in technological innovation, and this is reflected in their low per capita patenting rates both before and after the period without patent laws. They recorded a total of only 4561 patents in the entire period from 1800 to 1869 and, even after adjusting for population, the Dutch patenting rate in 1869 was a mere 13.4 percent of the U.S. patenting rate. Moreover, between 1851 and 1865 88.6 percent of patents in the Netherlands had been granted to foreigners. After the patent laws were reintroduced in 1912, the major beneficiaries were again foreign inventors, who obtained 79.3 of the patents issued in the Netherlands. Thus, the Netherlands had little reason to adopt patent protection, except for external political pressures and the possibility that some types of foreign investment might be deterred.

The case was somewhat different for Switzerland, which was noted for being innovative, but in a narrow range of pursuits. Since the scale of output and markets were quite limited, much of Swiss industry generated few incentives for invention. A number of the industries in which the Swiss excelled, such as hand-made watches, chocolates and food products, were less susceptible to invention that warranted patent protection. For instance, despite the much larger consumer market in the United States, during the entire nineteenth century fewer than 300 U.S. patents related to chocolate composition or production. Improvements in pursuits such as watch-making could be readily protected by trade secrecy as long as the industry remained artisanal. However, with increased mechanization and worker mobility, secrecy would ultimately prove to be ineffective, and innovators would be unable to appropriate returns without more formal means of exclusion.

According to contemporary observers, the Swiss resolved to introduce patent legislation not because of a sudden newfound sense of morality, but because they feared that American manufacturers were surpassing them as a result of patented innovations in the mass production of products such as boots, shoes and watches. Indeed, before 1890, American inventors obtained more than 2068 patents on watches, and the U.S. watch making industry benefited from mechanization and strong economies of scale that led to rapidly falling prices of output, making them more competitive internationally. The implications are that the rates of industrial and technical progress in the United States were more rapid, and technological change was rendering artisanal methods obsolete in products with mass markets. Thus, the Swiss endogenously adopted patent laws because of falling competitiveness in their key industrial sectors.

What was the impact of the introduction of patent protection in Switzerland? Foreign inventors could obtain patents in the United States regardless of their domestic legislation, so we can approach this question tangentially by examining the patterns of patenting in the United States by Swiss residents before and after the 1888 reforms. Between 1836 and 1888, Swiss residents obtained a grand total of 585 patents in the United States. Fully a third of these patents were for watches and music boxes, and only six were for textiles or dyeing, industries in which Switzerland was regarded as competitive early on. Swiss patentees were more oriented to the international market, rather than the small and unprotected domestic market where they could not hope to gain as much from their inventions. For instance, in 1872 Jean-Jacques Mullerpack of Basel collaborated with Leon Jarossonl of Lille, France to invent an improvement in dyeing black with aniline colors, which they assigned to William Morgan Brown of London, England. Another Basel inventor, Alfred Kern, assigned his 1883 patent for violet aniline dyes to the Badische Anilin and Soda Fabrik of Mannheim, Germany.

After the patent reforms, the rate of Swiss patenting in the United States immediately increased. Swiss patentees obtained an annual average of 32.8 patents in the United States in the decade before the patent law was enacted in Switzerland. After the Swiss allowed patenting, this figure increased to an average of 111 each year in the following six years, and in the period from 1895 to 1900 a total of 821 Swiss patents were filed in the United States. The decadal rate of patenting per million residents increased from 111.8 for the ten years up to the reforms, to 451 per million residents in the 1890s, 513 in the 1900s, 458 in the 1910s and 684 in the 1920s. U.S. statutes required worldwide novelty, and patents could not be granted for discoveries that had been in prior use, so the increase was not due to a backlog of trade secrets that were now patented.

Moreover, the introduction of Swiss patent laws also affected the direction of inventions that Swiss residents patented in the United States. After the passage of the law, such patents covered a much broader range of inventions, including gas generators, textile machines, explosives, turbines, paints and dyes, and drawing instruments and lamps. The relative importance of watches and music boxes immediately fell from about a third before the reforms to 6.2 percent and 2.1 percent respectively in the 1890s and even further to 3.8 percent and 0.3 percent between 1900 and 1909. Another indication that international patenting was not entirely unconnected to domestic Swiss inventions can be discerned from the fraction of Swiss patents (filed in the U.S.) that related to process innovations. Before 1888, 21 percent of the patent specifications mentioned a process. Between 1888 and 1907, the Swiss statutes included the requirement that patents should include mechanical models, which precluded patenting of pure processes. The fraction of specifications that mentioned a process fell during the period between 1888 and 1907, but returned to 22 percent when the restriction was modified in 1907.

In short, although the Swiss experience is often cited as proof of the redundancy of patent protection, the limitations of this special case should be taken into account. The domestic market was quite small and offered minimal opportunity or inducements for inventors to take advantage of economies of scale or cost-reducing innovations. Manufacturing tended to cluster in a few industries where innovation was largely irrelevant, such as premium chocolates, or in artisanal production that was susceptible to trade secrecy, such as watches and music boxes. In other areas, notably chemicals, dyes and pharmaceuticals, Swiss industries were export-oriented, but even today their output tends to be quite specialized and high-valued rather than mass-produced. Export-oriented inventors were likely to have been more concerned about patent protection in the important overseas markets, rather than in the home market. Thus, between 1888 and 1907, although Swiss laws excluded patents for chemicals, pharmaceuticals and dyes, 20.7 percent of the Swiss patents filed in the United States were for just these types of inventions. The scanty evidence on Switzerland suggests that the introduction of patent rights was accompanied by changes in the rate and direction of inventive activity. In any event, both the Netherlands and Switzerland featured unique circumstances that seem to hold few lessons for developing countries today.

The Patent System in the United States

The United States stands out as having established one of the most successful patent systems in the world. Over six million patents have been issued since 1790, and American industrial supremacy has frequently been credited to its favorable treatment of inventors and the inducements held out for inventive activity. The first Article of the U.S. Constitution included a clause to “promote the Progress of Science and the useful Arts by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Congress complied by passing a patent statute in April 1790. The United States created in 1836 the first modern patent institution in the world, a system whose features differed in significant respects from those of other major countries. The historical record indicates that the legislature’s creation of a uniquely American system was a deliberate and conscious process of promoting open access to the benefits of private property rights in inventions. The laws were enforced by a judiciary which was willing to grapple with difficult questions such as the extent to which a democratic and market-oriented political economy was consistent with exclusive rights. Courts explicitly attempted to implement decisions that promoted economic growth and social welfare.

The primary feature of the “American system” is that all applications are subject to an examination for conformity with the laws and for novelty. An examination system was set in place in 1790, when a select committee consisting of the Secretary of State (Thomas Jefferson), the Attorney General and the Secretary of War scrutinized the applications. These duties proved to be too time-consuming for highly ranked officials who had other onerous duties, so three years later it was replaced by a registration system. The validity of patents was left up to the district courts, which had the power to set in motion a process that could end in the repeal of the patent. However by the 1830s this process was viewed as cumbersome and the statute that was passed in 1836 set in place the essential structure of the current patent system. In particular, the 1836 Patent Law established the Patent Office, whose trained and technically qualified employees were authorized to examine applications. Employees of the Patent Office were not permitted to obtain patent rights. In order to constrain the ability of examiners to engage in arbitrary actions, the applicant was given the right to file a bill in equity to contest the decisions of the Patent Office with the further right of appeal to the Supreme Court of the United States.

American patent policy likewise stands out in its insistence on affordable fees. The legislature debated the question of appropriate fees, and the first patent law in 1790 set the rate at the minimal sum of $3.70 plus copy costs. In 1793 the fees were increased to $30, and were maintained at this level until 1861. In that year, they were raised to $35, and the term of the patent was changed from fourteen years (with the possibility of an extension) to seventeen years (with no extensions.) The 1869 Report of the Commissioner of Patents compared the $35 fee for a US patent to the significantly higher charges in European countries such as Britain, France, Russia ($450), Belgium ($420) and Austria ($350). The Commissioner speculated that both the private and social costs of patenting were lower in a system of impartial specialized examiners, than under a system where similar services were performed on a fee-per-service basis by private solicitors. He pointed out that in the U.S. the fees were not intended to exact a price for the patent privilege or to raise revenues for the state – the disclosure of information was the sole price for the patent property right – rather, they were imposed merely to cover the administrative expenses of the Office.

The basic parameters of the U.S. patent system were transparent and predictable, in itself an aid to those who wished to obtain patent rights. In addition, American legislators were concerned with ensuring that information about the stock of patented knowledge was readily available and diffused rapidly. As early as 1805 Congress stipulated that the Secretary of State should publish an annual list of patents granted the preceding year, and after 1832 also required the publication in newspapers of notices regarding expired patents. The Patent Office itself was a source of centralized information on the state of the arts. However, Congress was also concerned with the question of providing for decentralized access to patent materials. The Patent Office maintained repositories throughout the country, where inventors could forward their patent models at the expense of the Patent Office. Rural inventors could apply for patents without significant obstacles, because applications could be submitted by mail free of postage.

American laws employed the language of the English statute in granting patents to “the first and true inventor.” Nevertheless, unlike in England, the phrase was used literally, to grant patents for inventions that were original in the world, not simply within U.S. borders. American patent laws provided strong protection for citizens of the United States, but varied over time in its treatment of foreign inventors. Americans could not obtain patents for imported discoveries, but the earliest statutes of 1793, 1800 and 1832, restricted patent property to citizens or to residents who declared that they intended to become citizens. As such, while an American could not appropriate patent rights to a foreign invention, he could freely use the idea without any need to bear licensing or similar costs that would otherwise have been due if the inventor had been able to obtain a patent in this country. In 1836, the stipulations on citizenship or residency were removed, but were replaced with discriminatory patent fees: foreigners could obtain a patent in the U.S. for a fee of three hundred dollars, or five hundred if they were British. After 1861 patent rights (with the exception of caveats) were available to all applicants on the same basis without regard to nationality.

The American patent system was based on the presumption that social welfare coincided with the individual welfare of inventors. Accordingly, legislators rejected restrictions on the rights of American inventors. However, the 1832 and 1836 laws stipulated that foreigners had to exploit their patented invention within eighteen months. These clauses seem to have been interpreted by the courts in a fairly liberal fashion, since alien patentees “need not prove that they hawked the patented improvement to obtain a market for it, or that they endeavored to sell it to any person, but that it rested upon those who sought to defeat the patent to prove that the plaintiffs neglected or refused to sell the patented invention for reasonable prices when application was made to them to purchase.” Such provisions proved to be temporary aberrations and were not included in subsequent legislation. Working requirements or compulsory licenses were regarded as unwarranted infringements of the rights of “meritorious inventors,” and incompatible with the philosophy of U.S. patent grants. Patentees were not required to pay annuities to maintain their property, there were no opposition proceedings, and once granted a patent could not be revoked unless there was proven evidence of fraud.

One of the advantages of a system that secures property rights is that it facilitates contracts and trade. Assignments provide a straightforward index of the effectiveness of the American system, since trade in inventions would hardly proliferate if patent rights were uncertain or worthless. An extensive national network of licensing and assignments developed early on, aided by legal rulings that overturned contracts for useless or fraudulent patents. In 1845 the Patent Office recorded 2,108 assignments, which can be compared to the cumulative stock of 7188 patents that were still in force in that year. By the 1870s the number of assignments averaged over 9000 assignments per year, and this increased in the next decade to over 12,000 transactions recorded annually. This flourishing market for patented inventions provided an incentive for further inventive activity for inventors who were able to appropriate the returns from their efforts, and also linked patents and productivity growth.

Property rights are worth little unless they can be legally enforced in a consistent, certain, and predictable manner. A significant part of the explanation for the success of the American intellectual property system relates to the efficiency with which the laws were interpreted and implemented. United States federal courts from their inception attempted to establish a store of doctrine that fulfilled the intent of the Constitution to secure the rights of intellectual property owners. The judiciary acknowledged that inventive efforts varied with the extent to which inventors could appropriate the returns on their discoveries, and attempted to ensure that patentees were not unjustly deprived of the benefits from their inventions. Numerous reported decisions before the early courts declared that, rather than unwarranted monopolies, patent rights were “sacred” and to be regarded as the just recompense to inventive ingenuity. Early courts had to grapple with a number of difficult issues, such as the appropriate measure of damages, disputes between owners of conflicting patents, and how to protect the integrity of contracts when the law altered. Changes inevitably occurred when litigants and judiciary both adapted to a more complex inventive and economic environment. However, the system remained true to the Constitution in the belief that the defense of rights in patented invention was important in fostering industrial and economic development.

Economists such as Joseph Schumpeter have linked market concentration and innovation, and patent rights are often felt to encourage the establishment of monopoly enterprises. Thus, an important aspect of the enforcement of patents and intellectual property in general depends on competition or antitrust policies. The attitudes of the judiciary towards patent conflicts are primarily shaped by their interpretation of the monopoly aspect of the patent grant. The American judiciary in the early nineteenth century did not recognize patents as monopolies, arguing that patentees added to social welfare through innovations which had never existed before, whereas monopolists secured to themselves rights that already belong to the public. Ultimately, the judiciary came to openly recognize that the enforcement and protection of all property rights involved trade-offs between individual monopoly benefits and social welfare.

The passage of the Sherman Act in 1890 was associated with a populist emphasis on the need to protect the public from corporate monopolies, including those based on patent protection, and raised the prospect of conflicts between patent policies and the promotion of social welfare through industrial competition. Firms have rarely been charged directly with antitrust violations based on patent issues. At the same time, a number of landmark restraint of trade lawsuits have involved technological innovators. In the early decades of the 20th century these included innovative enterprises such as John Deere & Co., American Can and International Harvester, through to the numerous cases since 1970 against IBM, Xerox, Eastman Kodak and, most recently, Intel and Microsoft. The evidence suggests that, holding other factors constant, more innovative firms and those with larger patent stocks are more likely to be charged with antitrust violations. A growing fraction of cases involve firms jointly charged with antitrust violations that are linked to patent based market power and to concerns about “innovation markets.”

The Japanese Patent System

Japan emerged from the Meiji era as a follower nation which deliberately designed institutions to try to emulate those of the most advanced industrial countries. Accordingly, in 1886 Takahashi Korekiyo was sent on a mission to examine patent systems in Europe and the United States. The Japanese envoy was not favorably impressed with the European countries in this regard. Instead, he reported: ” … we have looked about us to see what nations are the greatest, so that we could be like them; … and we said, `What is it that makes the United States such a great nation?’ and we investigated and we found it was patents, and we will have patents.” The first national patent statute in Japan was passed in 1888, and copied many features of the U.S. system, including the examination procedures.

However, even in the first statute, differences existed that reflected Japanese priorities and the “wise eclecticism of Japanese legislators.” For instance, patents were not granted to foreigners, protection could not be obtained for fashion, food products, or medicines, patents that were not worked within three years could be revoked, and severe remedies were imposed for infringement, including penal servitude. After Japan became a signatory of the Paris Convention a new law was passed in 1899, which amended existing legislation to accord with the agreements of the Convention, and extended protection to foreigners. The influence of the German laws were evident in subsequent reforms in 1909 (petty or utility patents were protected) and 1921 (protection was removed from chemical products, work for hire doctrines were adopted, and an opposition procedure was introduced). The Act of 1921 also permitted the state to revoke a patent grant on payment of appropriate compensation if it was deemed in the public interest. Medicines, food and chemical products could not be patented, but protection could be obtained for processes relating to their manufacture.

The modern Japanese patent system is an interesting amalgam of features drawn from the major patent institutions in the world. Patent applications are filed, and the applicants then have seven years within which they can request an examination. Before 1996 examined patents were published prior to the actual grant, and could be opposed before the final grant; but at present, opposition can only occur in the first six months after the initial grant. Patents are also given for utility models or incremental inventions which are required to satisfy a lower standard of novelty and nonobviousness and can be more quickly commercialized. It has been claimed that the Japanese system favors the filing of a plethora of narrowly defined claims for utility models that build on the more substantive contributions of patent grants, leading to the prospect of an anti-commons through “patent flooding.” Others argue that utility models aid diffusion and innovation in the early stages of the patent term, and that the pre-grant publication of patent specifications also promotes diffusion.

Harmonization of International Patent Laws

Today very few developed countries would seriously consider eliminating statutory protection for intellectual property, but in the second half of the nineteenth century the “patent controversy” pitted advocates of patent rights against an effective abolitionist movement. For a short period the latter group was strong enough to obtain support in favor of dismantling the patent systems in countries such as England, and in 1863 the Congress of German Economists declared “patents of invention are injurious to common welfare.” The movement achieved its greatest victory in Holland, which repealed its patent legislation in 1869. The abolitionists based their arguments on the benefits of free trade and competition and viewed patents as part of a protectionist strategy analogous to tariffs. Instead of monopoly awards to inventors, their efforts could be rewarded by alternative policies, such as stipends from the government, payments from private industry or associations formed for that purpose, or simply through the lead time that the first inventor acquired over competitors by virtue of his prior knowledge.

The decisive victory of the patent proponents shifted the focus of interest to the other extreme, and led to efforts to attain uniformity in intellectual property rights regimes across countries. Part of the impetus for change occurred because the costs of discordant national rules became more burdensome as the volume of international trade in industrial products grew over time. Americans were also concerned about the lack of protection accorded to their exhibits in the increasingly more prominent World’s Fairs. Indeed, the first international patent convention was held in Austria in 1873, at the suggestion of U.S. policy makers, who wanted to be certain that their inventors would be adequately protected at the International Exposition in Vienna that year. It also yielded an opportunity to protest the provisions in Austrian law which discriminated against foreigners, including a requirement that patents had to be worked within one year or risk invalidation. The Vienna Convention adopted several resolutions, including a recommendation that the United States opposed, in favor of compulsory licenses if they were deemed in the public interest. However, the convention followed U.S. lead and did not approve compulsory working requirements.

International conventions proliferated in subsequent years, and their tenor tended to reflect the opinions of the conveners. Their objective was not to reach compromise solutions that would reflect the needs and wishes of all participants, but rather to promote preconceived ideas. The overarching goal was to pursue uniform international patent laws, although there was little agreement about the finer points of these laws. It became clear that the goal of complete uniformity was not practicable, given the different objectives, ideologies and economic circumstances of participants. Nevertheless, in 1884 the International Union for the Protection of Industrial Property was signed by Belgium, Portugal, France, Guatemala, Italy, the Netherlands, San Salvador, Serbia, Spain and Switzerland. The United States became a member in 1887, and a significant number of developing countries followed suit, including Brazil, Bulgaria, Cuba, the Dominican Republic, Ceylon, Mexico, Trinidad and Tobago and Indonesia, among others.

The United States was the most prolific patenting nation in the world, many of the major American enterprises owed their success to patents and were expanding into international markets, and the U.S. patent system was recognized as the most successful. It is therefore not surprising that patent harmonization implied convergence towards the American model despite resistance from other nations. Countries such as Germany were initially averse to extending equal protection to foreigners because they feared that their domestic industry would be overwhelmed by American patents. Ironically, because its patent laws were the most liberal towards patentees, the United States found itself with weaker bargaining abilities than nations who could make concessions by changing their provisions. The U.S. pressed for the adoption of reciprocity (which would ensure that American patentees were treated as favorably abroad as in the United States) but this principle was rejected in favor of “national treatment” (American patentees were to be granted the same rights as nationals of the foreign country). This likely influenced the U.S. tendency to use bilateral trade sanctions rather than multilateral conventions to obtain reforms in international patent policies.

It was commonplace in the nineteenth century to rationalize and advocate close links between trade policies, protection, and international laws regarding intellectual property. These links were evident at the most general philosophical level, and at the most specific, especially in terms of compulsory working requirements and provisions to allow imports by the patentee. For instance, the 1880 Paris Convention considered the question of imports of the patented product by the patentee. According to the laws of France, Mexico and Tunisia, such importation would result in the repeal of the patent grant. The Convention inserted an article that explicitly ruled out forfeiture of the patent under these circumstances, which led some French commentators to argue that “the laws on industrial property… will be truly disastrous if they do not have a counterweight in tariff legislation.” The movement to create an international patent system elucidated the fact that intellectual property laws do not exist in a vacuum, but are part of a bundle of rights that are affected by other laws and policies.


Appropriate institutions to promote creations in the material and intellectual sphere are especially critical because ideas and information are public goods that are characterized by nonrivalry and nonexclusion. Once the initial costs are incurred, ideas can be reproduced at zero marginal cost and it may be difficult to exclude others from their use. Thus, in a competitive market, public goods may suffer from underprovision or may never be created because of a lack of incentive on the part of the original provider who bears the initial costs but may not be able to appropriate the benefits. Market failure can be ameliorated in several ways, for instance through government provision, rewards or subsidies to original creators, private patronage, and through the creation of intellectual property rights.

Patents allow the initial producers a limited period during which they are able to benefit from a right of exclusion. If creativity is a function of expected profits, these grants to inventors have the potential to increase social production possibilities at lower cost. Disclosure requirements promote diffusion, and the expiration of the temporary monopoly right ultimately adds to the public domain. Overall welfare is enhanced if the social benefits of diffusion outweigh the deadweight and social costs of temporary exclusion. This period of exclusion may be costly for society, especially if future improvements are deterred, and if rent-seeking such as redistributive litigation results in wasted resources. Much attention has also been accorded to theoretical features of the optimal system, including the breadth, longevity, and height of patent and copyright grants.

However, strongly enforced rights do not always benefit the producers and owners of intellectual property rights, especially if there is a prospect of cumulative invention where follow-on inventors build on the first discovery. Thus, more nuanced models are ambivalent about the net welfare benefits of strong exclusive rights to inventions. Indeed, network models imply that the social welfare of even producers may increase from weak enforcement if more extensive use of the product increases the value to all users. Under these circumstances, the patent owner may benefit from the positive externalities created by piracy. In the absence of royalties, producers may appropriate returns through ancillary means, such as the sale of complementary items or improved reputation. In a variant of the durable-goods monopoly problem, it has been shown that piracy can theoretically increase the demand for products by ensuring that producers can credibly commit to uniform prices over time. Also in this vein, price and/or quality discrimination of non-private goods across pirates and legitimate users can result in net welfare benefits for society and for the individual firm. If the cost of imitation increases with quality, infringement can also benefit society if it causes firms to adopt a strategy of producing higher quality commodities.

Economic theorists who are troubled by the imperfections of intellectual property grants have proposed alternative mechanisms that lead to more satisfactory mathematical solutions. Theoretical analyses have advanced our understanding in this area, but such models by their nature cannot capture many complexities. They tend to overlook such factors as the potential for greater corruption or arbitrariness in the administration of alternatives to patents. Similarly, they fail to appreciate the role of private property rights in conveying information and facilitating markets, and their value in reducing risk and uncertainty for independent inventors with few private resources. The analysis becomes even less satisfactory when producers belong to different countries than consumers. Thus, despite the flurry of academic research on the economics of intellectual property, we have not progressed far beyond Fritz Machlup’s declaration that our state of knowledge does not allow to us to either recommend the introduction or the removal of such systems. Existing studies leave a wide area of ambiguity about the causes and consequences of institutional structures in general, and their evolution across time and region.

In the realm of intellectual property, questions from four centuries ago are still current, ranging from its philosophical underpinnings, to whether patents and copyrights constitute optimal policies towards intellectual inventions, to the growing concerns of international political economy. A number of scholars are so impressed with technological advances in the twenty-first century that they argue we have reached a critical juncture where we need completely new institutions. Throughout their history, patent and copyright regimes have confronted and accommodated technological innovations that were no less significant and contentious for their time. An economist from the nineteenth century would have been equally familiar with considerations about whether uniformity in intellectual property rights across countries harmed or benefited global welfare, and whether piracy might be to the advantage of developing countries. Similarly, the link between trade and intellectual property rights that informs the TRIPS (trade-related aspects of intellectual property rights) agreement was quite standard two centuries ago.

Today the majority of patents are filed in developed countries by the residents of developed countries, most notably those of Japan and the United States. The developing countries of the twenty-first century are under significant political pressure to adopt stronger patent laws and enforcement, even though few patents are filed by residents of the developing countries. Critics of intellectual property rights point to costs, such as monopoly rents and higher barriers to entry, administrative costs, outflows of royalty payments to foreign entities, and a lack of indigenous innovation. Other studies, however, have more optimistic findings regarding the role of patents in economic and social development. They suggest that stronger protection can encourage more foreign direct investment, greater access to technology, and increased benefits from trade openness. Moreover, both economic history and modern empirical research indicate that stronger patent rights and more effective markets in invention can, by encouraging and enabling the inventiveness of ordinary citizens of developing countries, help to increase social and economic welfare.

Patents Statistics for France, Britain, the United States and Germany, 1790-1960
1790 . 68 3 .
1791 34 57 33 .
1792 29 85 11 .
1793 4 43 20 .
1794 0 55 22 .
1795 1 51 12 .
1796 8 75 44 .
1797 4 54 51 .
1798 10 77 28 .
1799 22 82 44 .
1800 16 96 41 .
1801 34 104 44 .
1802 29 107 65 .
1803 45 73 97 .
1804 44 60 84 .
1805 63 95 57 .
1806 101 99 63 .
1807 66 94 99 .
1808 61 95 158 .
1809 52 101 203 .
1810 93 108 223 .
1811 66 115 215 0
1812 96 119 238 2
1813 88 142 181 2
1814 53 96 210 1
1815 77 102 173 10
1816 115 118 206 10
1817 162 103 174 16
1818 153 132 222 18
1819 138 101 156 10
1820 151 97 155 10
1821 180 109 168 11
1822 175 113 200 8
1823 187 138 173 22
1824 217 180 228 25
1825 321 250 304 17
1826 281 131 323 67
1827 333 150 331 69
1828 388 154 368 87
1829 452 130 447 59
1830 366 180 544 57
1831 220 150 573 34
1832 287 147 474 46
1833 431 180 586 76
1834 576 207 630 66
1835 556 231 752 73
1836 582 296 702 65
1837 872 256 426 46
1838 1312 394 514 104
1839 730 411 404 125
1840 947 440 458 156
1841 925 440 490 162
1842 1594 371 488 153
1843 1397 420 493 160
1844 1863 450 478 158
1845 2666 572 473 256
1846 2750 493 566 252
1847 2937 493 495 329
1848 1191 388 583 256
1849 1953 514 984 253
1850 2272 523 883 308
1851 2462 455 752 274
1852 3279 1384 885 272
1853 4065 2187 844 287
1854 4563 1878 1755 276
1855 5398 2046 1881 287
1856 5761 1094 2302 393
1857 6110 2028 2674 414
1858 5828 1954 3455 375
1859 5439 1977 4160 384
1860 6122 2063 4357 550
1861 5941 2047 3020 551
1862 5859 2191 3214 630
1863 5890 2094 3773 633
1864 5653 2024 4630 557
1865 5472 2186 6088 609
1866 5671 2124 8863 549
1867 6098 2284 12277 714
1868 6103 2490 12526 828
1869 5906 2407 12931 616
1870 3850 2180 12137 648
1871 2782 2376 11659 458
1872 4875 2771 12180 958
1873 5074 2974 11616 1130
1874 5746 3162 12230 1245
1875 6007 3112 13291 1382
1876 6736 3435 14169 1947
1877 7101 3317 12920 1604
1878 7981 3509 12345 4200
1879 7828 3524 12165 4410
1880 7660 3741 12902 3960
1881 7813 3950 15500 4339
1882 7724 4337 18091 4131
1883 8087 3962 21162 4848
1884 8253 9983 19118 4459
1885 8696 8775 23285 4018
1886 9011 9099 21767 4008
1887 8863 9226 20403 3882
1888 8669 9309 19551 3923
1889 9287 10081 23324 4406
1890 9009 10646 25313 4680
1891 9292 10643 22312 5550
1892 9902 11164 22647 5900
1893 9860 11600 22750 6430
1894 10433 11699 19855 6280
1895 10257 12191 20856 5720
1896 11430 12473 21822 5410
1897 12550 14210 22067 5440
1898 12421 14167 20377 5570
1899 12713 14160 23278 7430
1900 12399 13710 24644 8784
1901 12103 13062 25546 10508
1902 12026 13764 27119 10610
1903 12469 15718 31029 9964
1904 12574 15089 30258 9189
1905 12953 14786 29775 9600
1906 13097 14707 31170 13430
1907 13170 16272 35859 13250
1908 13807 16284 32735 11610
1909 13466 15065 36561 11995
1910 16064 15269 35141 12100
1911 15593 17164 32856 12640
1912 15737 15814 36198 13080
1913 15967 16599 33917 13520
1914 12161 15036 39892 12350
1915 5056 11457 43118 8190
1916 3250 8424 43892 6271
1917 4100 9347 40935 7399
1918 4400 10809 38452 7340
1919 10500 12301 36797 7766
1920 18950 14191 37060 14452
1921 17700 17697 37798 15642
1922 18300 17366 38369 20715
1923 19200 17073 38616 20526
1924 19200 16839 42584 18189
1925 18000 17199 46432 15877
1926 18200 17333 44733 15500
1927 17500 17624 41717 15265
1928 22000 17695 42357 15598
1929 24000 18937 45267 20202
1930 24000 20888 45226 26737
1931 24000 21949 51761 25846
1932 21850 21150 53504 26201
1933 20000 17228 48807 21755
1934 19100 16890 44452 17011
1935 18000 17675 40663 16139
1936 16700 17819 39831 16750
1937 16750 17614 37738 14526
1938 14000 19314 38102 15068
1939 15550 17605 43118 16525
1940 10100 11453 42323 14647
1941 8150 11179 41171 14809
1942 10000 7962 38514 14648
1943 12250 7945 31101 14883
1944 11650 7712 28091 .
1945 7360 7465 25712 .
1946 11050 8971 21859 .
1947 13500 11727 20191 .
1948 13700 15558 24007 .
1949 16700 20703 35224 .
1950 17800 13509 43219 .
1951 25200 13761 44384 27767
1952 20400 21380 43717 37179
1953 43000 17882 40546 37113
1954 34000 17985 33910 19140
1955 23000 20630 30535 14760
1956 21900 19938 46918 18150
1957 23000 25205 42873 20467
1958 24950 18531 48450 19837
1959 41600 18157 52509 22556
1960 35000 26775 47286 19666

Additional Reading

Khan, B. Zorina. The Democratization of Invention: Patents and Copyrights in American Economic Development. New York: Cambridge University Press, 2005.

Khan, B. Zorina, and Kenneth L. Sokoloff. “Institutions and Technological Innovation during Early Economic Growth, 1790-1930.” NBER Working Paper No. 10966. Cambridge, MA: December 2004. (Available at


Besen, Stanley M., and Leo J. Raskind, “Introduction to the Law and Economics of Intellectual Property.” Journal of Economic Perspectives 5, no. 1 (1991): 3-27.

Bugbee, Bruce. The Genesis of American Patent and Copyright Law. Washington, DC: Public Affairs Press, 1967.

Coulter, Moureen. Property in Ideas: The Patent Question in Mid-Victorian England. Kirksville, MO: Thomas Jefferson Press, 1991

Dutton, H. I. The Patent System and Inventive Activity during the Industrial Revolution, 1750-1852, Manchester, UK: Manchester University Press, 1984.

Epstein, R. “Industrial Inventions: Heroic or Systematic?” Quarterly Journal of Economics 40 (1926): 232-72.

Gallini, Nancy T. “The Economics of Patents: Lessons from Recent U.S. Patent Reform.” Journal of Economic Perspectives 16, no. 2 (2002): 131–54.

Gilbert, Richard and Carl Shapiro. “Optimal Patent Length and Breadth.” Rand Journal of Economics 21 (1990): 106-12.

Gilfillan, S. Colum. The Sociology of Invention. Cambridge, MA: Follett, 1935.

Gomme, A. A. Patents of Invention: Origin and Growth of the Patent System in Britain, London: Longmans Green, 1946.

Harding, Herbert. Patent Office Centenary, London: Her Majesty’s Stationery Office, 1953.

Hilaire-Pérez, Liliane. Inventions et Inventeurs en France et en Angleterre au XVIIIe siècle. Lille: Université de Lille, 1994.

Hilaire-Pérez, Liliane. L’invention technique au siècle des Lumières. Paris: Albin Michel, 2000.

Jeremy, David J., Transatlantic Industrial Revolution: The Diffusion of Textile Technologies between Britain and America, 1790-1830s. Cambridge, MA: MIT Press, 1981.

Khan, B. Zorina. “Property Rights and Patent Litigation in Early Nineteenth-Century America.” Journal of Economic History 55, no. 1 (1995): 58-97.

Khan, B. Zorina. “Married Women’s Property Right Laws and Female Commercial Activity.” Journal of Economic History 56, no. 2 (1996): 356-88.

Khan, B. Zorina. “Federal Antitrust Agencies and Public Policy towards Patents and Innovation.” Cornell Journal of Law and Public Policy 9 (1999): 133-69.

Khan, B. Zorina, “`Not for Ornament’: Patenting Activity by Women Inventors.” Journal of Interdisciplinary History 33, no. 2 (2000): 159-95.

Khan, B. Zorina. “Technological Innovations and Endogenous Changes in U.S. Legal Institutions, 1790-1920.” NBER Working Paper No. 10346. Cambridge, MA: March 2004. (available at

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Japanese Industrialization and Economic Growth

Carl Mosk, University of Victoria

Japan achieved sustained growth in per capita income between the 1880s and 1970 through industrialization. Moving along an income growth trajectory through expansion of manufacturing is hardly unique. Indeed Western Europe, Canada, Australia and the United States all attained high levels of income per capita by shifting from agrarian-based production to manufacturing and technologically sophisticated service sector activity.

Still, there are four distinctive features of Japan’s development through industrialization that merit discussion:

The proto-industrial base

Japan’s agricultural productivity was high enough to sustain substantial craft (proto-industrial) production in both rural and urban areas of the country prior to industrialization.

Investment-led growth

Domestic investment in industry and infrastructure was the driving force behind growth in Japanese output. Both private and public sectors invested in infrastructure, national and local governments serving as coordinating agents for infrastructure build-up.

  • Investment in manufacturing capacity was largely left to the private sector.
  • Rising domestic savings made increasing capital accumulation possible.
  • Japanese growth was investment-led, not export-led.

Total factor productivity growth — achieving more output per unit of input — was rapid.

On the supply side, total factor productivity growth was extremely important. Scale economies — the reduction in per unit costs due to increased levels of output — contributed to total factor productivity growth. Scale economies existed due to geographic concentration, to growth of the national economy, and to growth in the output of individual companies. In addition, companies moved down the “learning curve,” reducing unit costs as their cumulative output rose and demand for their product soared.

The social capacity for importing and adapting foreign technology improved and this contributed to total factor productivity growth:

  • At the household level, investing in education of children improved social capability.
  • At the firm level, creating internalized labor markets that bound firms to workers and workers to firms, thereby giving workers a strong incentive to flexibly adapt to new technology, improved social capability.
  • At the government level, industrial policy that reduced the cost to private firms of securing foreign technology enhanced social capacity.

Shifting out of low-productivity agriculture into high productivity manufacturing, mining, and construction contributed to total factor productivity growth.


Sharply segmented labor and capital markets emerged in Japan after the 1910s. The capital intensive sector enjoying high ratios of capital to labor paid relatively high wages, and the labor intensive sector paid relatively low wages.

Dualism contributed to income inequality and therefore to domestic social unrest. After 1945 a series of public policy reforms addressed inequality and erased much of the social bitterness around dualism that ravaged Japan prior to World War II.

The remainder of this article will expand on a number of the themes mentioned above. The appendix reviews quantitative evidence concerning these points. The conclusion of the article lists references that provide a wealth of detailed evidence supporting the points above, which this article can only begin to explore.

The Legacy of Autarky and the Proto-Industrial Economy: Achievements of Tokugawa Japan (1600-1868)

Why Japan?

Given the relatively poor record of countries outside the European cultural area — few achieving the kind of “catch-up” growth Japan managed between 1880 and 1970 – the question naturally arises: why Japan? After all, when the United States forcibly “opened Japan” in the 1850s and Japan was forced to cede extra-territorial rights to a number of Western nations as had China earlier in the 1840s, many Westerners and Japanese alike thought Japan’s prospects seemed dim indeed.

Tokugawa achievements: urbanization, road networks, rice cultivation, craft production

In answering this question, Mosk (2001), Minami (1994) and Ohkawa and Rosovsky (1973) emphasize the achievements of Tokugawa Japan (1600-1868) during a long period of “closed country” autarky between the mid-seventeenth century and the 1850s: a high level of urbanization; well developed road networks; the channeling of river water flow with embankments and the extensive elaboration of irrigation ditches that supported and encouraged the refinement of rice cultivation based upon improving seed varieties, fertilizers and planting methods especially in the Southwest with its relatively long growing season; the development of proto-industrial (craft) production by merchant houses in the major cities like Osaka and Edo (now called Tokyo) and its diffusion to rural areas after 1700; and the promotion of education and population control among both the military elite (the samurai) and the well-to-do peasantry in the eighteenth and early nineteenth centuries.

Tokugawa political economy: daimyo and shogun

These developments were inseparable from the political economy of Japan. The system of confederation government introduced at the end of the fifteenth century placed certain powers in the hands of feudal warlords, daimyo, and certain powers in the hands of the shogun, the most powerful of the warlords. Each daimyo — and the shogun — was assigned a geographic region, a domain, being given taxation authority over the peasants residing in the villages of the domain. Intercourse with foreign powers was monopolized by the shogun, thereby preventing daimyo from cementing alliances with other countries in an effort to overthrow the central government. The samurai military retainers of the daimyo were forced to abandon rice farming and reside in the castle town headquarters of their daimyo overlord. In exchange, samurai received rice stipends from the rice taxes collected from the villages of their domain. By removing samurai from the countryside — by demilitarizing rural areas — conflicts over local water rights were largely made a thing of the past. As a result irrigation ditches were extended throughout the valleys, and riverbanks were shored up with stone embankments, facilitating transport and preventing flooding.

The sustained growth of proto-industrialization in urban Japan, and its widespread diffusion to villages after 1700 was also inseparable from the productivity growth in paddy rice production and the growing of industrial crops like tea, fruit, mulberry plant growing (that sustained the raising of silk cocoons) and cotton. Indeed, Smith (1988) has given pride of place to these “domestic sources” of Japan’s future industrial success.

Readiness to emulate the West

As a result of these domestic advances, Japan was well positioned to take up the Western challenge. It harnessed its infrastructure, its high level of literacy, and its proto-industrial distribution networks to the task of emulating Western organizational forms and Western techniques in energy production, first and foremost enlisting inorganic energy sources like coal and the other fossil fuels to generate steam power. Having intensively developed the organic economy depending upon natural energy flows like wind, water and fire, Japanese were quite prepared to master inorganic production after the Black Ships of the Americans forced Japan to jettison its long-standing autarky.

From Balanced to Dualistic Growth, 1887-1938: Infrastructure and Manufacturing Expand

Fukoku Kyohei

After the Tokugawa government collapsed in 1868, a new Meiji government committed to the twin policies of fukoku kyohei (wealthy country/strong military) took up the challenge of renegotiating its treaties with the Western powers. It created infrastructure that facilitated industrialization. It built a modern navy and army that could keep the Western powers at bay and establish a protective buffer zone in North East Asia that eventually formed the basis for a burgeoning Japanese empire in Asia and the Pacific.

Central government reforms in education, finance and transportation

Jettisoning the confederation style government of the Tokugawa era, the new leaders of the new Meiji government fashioned a unitary state with powerful ministries consolidating authority in the capital, Tokyo. The freshly minted Ministry of Education promoted compulsory primary schooling for the masses and elite university education aimed at deepening engineering and scientific knowledge. The Ministry of Finance created the Bank of Japan in 1882, laying the foundations for a private banking system backed up a lender of last resort. The government began building a steam railroad trunk line girding the four major islands, encouraging private companies to participate in the project. In particular, the national government committed itself to constructing a Tokaido line connecting the Tokyo/Yokohama region to the Osaka/Kobe conurbation along the Pacific coastline of the main island of Honshu, and to creating deepwater harbors at Yokohama and Kobe that could accommodate deep-hulled steamships.

Not surprisingly, the merchants in Osaka, the merchant capital of Tokugawa Japan, already well versed in proto-industrial production, turned to harnessing steam and coal, investing heavily in integrated spinning and weaving steam-driven textile mills during the 1880s.

Diffusion of best-practice agriculture

At the same time, the abolition of the three hundred or so feudal fiefs that were the backbone of confederation style-Tokugawa rule and their consolidation into politically weak prefectures, under a strong national government that virtually monopolized taxation authority, gave a strong push to the diffusion of best practice agricultural technique. The nationwide diffusion of seed varieties developed in the Southwest fiefs of Tokugawa Japan spearheaded a substantial improvement in agricultural productivity especially in the Northeast. Simultaneously, expansion of agriculture using traditional Japanese technology agriculture and manufacturing using imported Western technology resulted.

Balanced growth

Growth at the close of the nineteenth century was balanced in the sense that traditional and modern technology using sectors grew at roughly equal rates, and labor — especially young girls recruited out of farm households to labor in the steam using textile mills — flowed back and forth between rural and urban Japan at wages that were roughly equal in industrial and agricultural pursuits.

Geographic economies of scale in the Tokaido belt

Concentration of industrial production first in Osaka and subsequently throughout the Tokaido belt fostered powerful geographic scale economies (the ability to reduce per unit costs as output levels increase), reducing the costs of securing energy, raw materials and access to global markets for enterprises located in the great harbor metropolises stretching from the massive Osaka/Kobe complex northward to the teeming Tokyo/Yokohama conurbation. Between 1904 and 1911, electrification mainly due to the proliferation of intercity electrical railroads created economies of scale in the nascent industrial belt facing outward onto the Pacific. The consolidation of two huge hydroelectric power grids during the 1920s — one servicing Tokyo/Yokohama, the other Osaka and Kobe — further solidified the comparative advantage of the Tokaido industrial belt in factory production. Finally, the widening and paving during the 1920s of roads that could handle buses and trucks was also pioneered by the great metropolises of the Tokaido, which further bolstered their relative advantage in per capita infrastructure.

Organizational economies of scale — zaibatsu

In addition to geographic scale economies, organizational scale economies also became increasingly important in the late nineteenth centuries. The formation of the zaibatsu (“financial cliques”), which gradually evolved into diversified industrial combines tied together through central holding companies, is a case in point. By the 1910s these had evolved into highly diversified combines, binding together enterprises in banking and insurance, trading companies, mining concerns, textiles, iron and steel plants, and machinery manufactures. By channeling profits from older industries into new lines of activity like electrical machinery manufacturing, the zaibatsu form of organization generated scale economies in finance, trade and manufacturing, drastically reducing information-gathering and transactions costs. By attracting relatively scare managerial and entrepreneurial talent, the zaibatsu format economized on human resources.


The push into electrical machinery production during the 1920s had a revolutionary impact on manufacturing. Effective exploitation of steam power required the use of large central steam engines simultaneously driving a large number of machines — power looms and mules in a spinning/weaving plant for instance – throughout a factory. Small enterprises did not mechanize in the steam era. But with electrification the “unit drive” system of mechanization spread. Each machine could be powered up independently of one another. Mechanization spread rapidly to the smallest factory.

Emergence of the dualistic economy

With the drive into heavy industries — chemicals, iron and steel, machinery — the demand for skilled labor that would flexibly respond to rapid changes in technique soared. Large firms in these industries began offering premium wages and guarantees of employment in good times and bad as a way of motivating and holding onto valuable workers. A dualistic economy emerged during the 1910s. Small firms, light industry and agriculture offered relatively low wages. Large enterprises in the heavy industries offered much more favorable remuneration, extending paternalistic benefits like company housing and company welfare programs to their “internal labor markets.” As a result a widening gulf opened up between the great metropolitan centers of the Tokaido and rural Japan. Income per head was far higher in the great industrial centers than in the hinterland.

Clashing urban/rural and landlord/tenant interests

The economic strains of emergent dualism were amplified by the slowing down of technological progress in the agricultural sector, which had exhaustively reaped the benefits due to regional diffusion from the Southwest to the Northeast of best practice Tokugawa rice cultivation. Landlords — around 45% of the cultivable rice paddy land in Japan was held in some form of tenancy at the beginning of the twentieth century — who had played a crucial role in promoting the diffusion of traditional best practice techniques now lost interest in rural affairs and turned their attention to industrial activities. Tenants also found their interests disregarded by the national authorities in Tokyo, who were increasingly focused on supplying cheap foodstuffs to the burgeoning industrial belt by promoting agricultural production within the empire that it was assembling through military victories. Japan secured Taiwan from China in 1895, and formally brought Korea under its imperial rule in 1910 upon the heels of its successful war against Russia in 1904-05. Tenant unions reacted to this callous disrespect of their needs through violence. Landlord/tenant disputes broke out in the early 1920s, and continued to plague Japan politically throughout the 1930s, calls for land reform and bureaucratic proposals for reform being rejected by a Diet (Japan’s legislature) politically dominated by landlords.

Japan’s military expansion

Japan’s thrust to imperial expansion was inflamed by the growing instability of the geopolitical and international trade regime of the later 1920s and early 1930s. The relative decline of the United Kingdom as an economic power doomed a gold standard regime tied to the British pound. The United States was becoming a potential contender to the United Kingdom as the backer of a gold standard regime but its long history of high tariffs and isolationism deterred it from taking over leadership in promoting global trade openness. Germany and the Soviet Union were increasingly becoming industrial and military giants on the Eurasian land mass committed to ideologies hostile to the liberal democracy championed by the United Kingdom and the United States. It was against this international backdrop that Japan began aggressively staking out its claim to being the dominant military power in East Asia and the Pacific, thereby bringing it into conflict with the United States and the United Kingdom in the Asian and Pacific theaters after the world slipped into global warfare in 1939.

Reform and Reconstruction in a New International Economic Order, Japan after World War II

Postwar occupation: economic and institutional restructuring

Surrendering to the United States and its allies in 1945, Japan’s economy and infrastructure was revamped under the S.C.A.P (Supreme Commander of the Allied Powers) Occupation lasting through 1951. As Nakamura (1995) points out, a variety of Occupation-sponsored reforms transformed the institutional environment conditioning economic performance in Japan. The major zaibatsu were liquidated by the Holding Company Liquidation Commission set up under the Occupation (they were revamped as keiretsu corporate groups mainly tied together through cross-shareholding of stock in the aftermath of the Occupation); land reform wiped out landlordism and gave a strong push to agricultural productivity through mechanization of rice cultivation; and collective bargaining, largely illegal under the Peace Preservation Act that was used to suppress union organizing during the interwar period, was given the imprimatur of constitutional legality. Finally, education was opened up, partly through making middle school compulsory, partly through the creation of national universities in each of Japan’s forty-six prefectures.

Improvement in the social capability for economic growth

In short, from a domestic point of view, the social capability for importing and adapting foreign technology was improved with the reforms in education and the fillip to competition given by the dissolution of the zaibatsu. Resolving tension between rural and urban Japan through land reform and the establishment of a rice price support program — that guaranteed farmers incomes comparable to blue collar industrial workers — also contributed to the social capacity to absorb foreign technology by suppressing the political divisions between metropolitan and hinterland Japan that plagued the nation during the interwar years.

Japan and the postwar international order

The revamped international economic order contributed to the social capability of importing and adapting foreign technology. The instability of the 1920s and 1930s was replaced with a relatively predictable bipolar world in which the United States and the Soviet Union opposed each other in both geopolitical and ideological arenas. The United States became an architect of multilateral architecture designed to encourage trade through its sponsorship of the United Nations, the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade (the predecessor to the World Trade Organization). Under the logic of building military alliances to contain Eurasian Communism, the United States brought Japan under its “nuclear umbrella” with a bilateral security treaty. American companies were encouraged to license technology to Japanese companies in the new international environment. Japan redirected its trade away from the areas that had been incorporated into the Japanese Empire before 1945, and towards the huge and expanding American market.

Miracle Growth: Soaring Domestic Investment and Export Growth, 1953-1970

Its infrastructure revitalized through the Occupation period reforms, its capacity to import and export enhanced by the new international economic order, and its access to American technology bolstered through its security pact with the United States, Japan experienced the dramatic “Miracle Growth” between 1953 and the early 1970s whose sources have been cogently analyzed by Denison and Chung (1976). Especially striking in the Miracle Growth period was the remarkable increase in the rate of domestic fixed capital formation, the rise in the investment proportion being matched by a rising savings rate whose secular increase — especially that of private household savings – has been well documented and analyzed by Horioka (1991). While Japan continued to close the gap in income per capita between itself and the United States after the early 1970s, most scholars believe that large Japanese manufacturing enterprises had by and large become internationally competitive by the early 1970s. In this sense it can be said that Japan had completed its nine decade long convergence to international competitiveness through industrialization by the early 1970s.


There is little doubt that the social capacity to import and adapt foreign technology was vastly improved in the aftermath of the Pacific War. Creating social consensus with Land Reform and agricultural subsidies reduced political divisiveness, extending compulsory education and breaking up the zaibatsu had a positive impact. Fashioning the Ministry of International Trade and Industry (M.I.T.I.) that took responsibility for overseeing industrial policy is also viewed as facilitating Japan’s social capability. There is no doubt that M.I.T.I. drove down the cost of securing foreign technology. By intervening between Japanese firms and foreign companies, it acted as a single buyer of technology, playing off competing American and European enterprises in order to reduce the royalties Japanese concerns had to pay on technology licenses. By keeping domestic patent periods short, M.I.T.I. encouraged rapid diffusion of technology. And in some cases — the experience of International Business Machines (I.B.M.), enjoying a virtual monopoly in global mainframe computer markets during the 1950s and early 1960s, is a classical case — M.I.T.I. made it a condition of entry into the Japanese market (through the creation of a subsidiary Japan I.B.M. in the case of I.B.M.) that foreign companies share many of their technological secrets with potential Japanese competitors.

How important industrial policy was for Miracle Growth remains controversial, however. The view of Johnson (1982), who hails industrial policy as a pillar of the Japanese Development State (government promoting economic growth through state policies) has been criticized and revised by subsequent scholars. The book by Uriu (1996) is a case in point.

Internal labor markets, just-in-time inventory and quality control circles

Furthering the internalization of labor markets — the premium wages and long-term employment guarantees largely restricted to white collar workers were extended to blue collar workers with the legalization of unions and collective bargaining after 1945 — also raised the social capability of adapting foreign technology. Internalizing labor created a highly flexible labor force in post-1950 Japan. As a result, Japanese workers embraced many of the key ideas of Just-in-Time inventory control and Quality Control circles in assembly industries, learning how to do rapid machine setups as part and parcel of an effort to produce components “just-in-time” and without defect. Ironically, the concepts of just-in-time and quality control were originally developed in the United States, just-in-time methods being pioneered by supermarkets and quality control by efficiency experts like W. Edwards Deming. Yet it was in Japan that these concepts were relentlessly pursued to revolutionize assembly line industries during the 1950s and 1960s.

Ultimate causes of the Japanese economic “miracle”

Miracle Growth was the completion of a protracted historical process involving enhancing human capital, massive accumulation of physical capital including infrastructure and private manufacturing capacity, the importation and adaptation of foreign technology, and the creation of scale economies, which took decades and decades to realize. Dubbed a miracle, it is best seen as the reaping of a bountiful harvest whose seeds were painstakingly planted in the six decades between 1880 and 1938. In the course of the nine decades between the 1880s and 1970, Japan amassed and lost a sprawling empire, reorienting its trade and geopolitical stance through the twists and turns of history. While the ultimate sources of growth can be ferreted out through some form of statistical accounting, the specific way these sources were marshaled in practice is inseparable from the history of Japan itself and of the global environment within which it has realized its industrial destiny.

Appendix: Sources of Growth Accounting and Quantitative Aspects of Japan’s Modern Economic Development

One of the attractions of studying Japan’s post-1880 economic development is the abundance of quantitative data documenting Japan’s growth. Estimates of Japanese income and output by sector, capital stock and labor force extend back to the 1880s, a period when Japanese income per capita was low. Consequently statistical probing of Japan’s long-run growth from relative poverty to abundance is possible.

The remainder of this appendix is devoted to introducing the reader to the vast literature on quantitative analysis of Japan’s economic development from the 1880s until 1970, a nine decade period during which Japanese income per capita converged towards income per capita levels in Western Europe. As the reader will see, this discussion confirms the importance of factors discussed at the outset of this article.

Our initial touchstone is the excellent “sources of growth” accounting analysis carried out by Denison and Chung (1976) on Japan’s growth between 1953 and 1971. Attributing growth in national income in growth of inputs, the factors of production — capital and labor — and growth in output per unit of the two inputs combined (total factor productivity) along the following lines:

G(Y) = { a G(K) + [1-a] G(L) } + G (A)

where G(Y) is the (annual) growth of national output, g(K) is the growth rate of capital services, G(L) is the growth rate of labor services, a is capital’s share in national income (the share of income accruing to owners of capital), and G(A) is the growth of total factor productivity, is a standard approach used to approximate the sources of growth of income.

Using a variant of this type of decomposition that takes into account improvements in the quality of capital and labor, estimates of scale economies and adjustments for structural change (shifting labor out of agriculture helps explain why total factor productivity grows), Denison and Chung (1976) generate a useful set of estimates for Japan’s Miracle Growth era.

Operating with this “sources of growth” approach and proceeding under a variety of plausible assumptions, Denison and Chung (1976) estimate that of Japan’s average annual real national income growth of 8.77 % over 1953-71, input growth accounted for 3.95% (accounting for 45% of total growth) and growth in output per unit of input contributed 4.82% (accounting for 55% of total growth). To be sure, the precise assumptions and techniques they use can be criticized. The precise numerical results they arrive at can be argued over. Still, their general point — that Japan’s growth was the result of improvements in the quality of factor inputs — health and education for workers, for instance — and improvements in the way these inputs are utilized in production — due to technological and organizational change, reallocation of resources from agriculture to non-agriculture, and scale economies, is defensible.

With this in mind consider Table 1.

Table 1: Industrialization and Economic Growth in Japan, 1880-1970:
Selected Quantitative Characteristics

Panel A: Income and Structure of National Output

Real Income per Capita [a] Share of National Output (of Net Domestic Product) and Relative Labor Productivity (Ratio of Output per Worker in Agriculture to Output per Worker in the N Sector) [b]
Years Absolute Relative to U.S. level Year Agriculture Manufacturing & Mining



Construction & Facilitating Sectors [b]

Relative Labor Productivity


1881-90 893 26.7% 1887 42.5% 13.6% 20.0% 68.3
1891-1900 1,049 28.5 1904 37.8 17.4 25.8 44.3
1900-10 1,195 25.3 1911 35.5 20.3 31.1 37.6
1911-20 1,479 27.9 1919 29.9 26.2 38.3 32.5
1921-30 1,812 29.1 1930 20.0 25.8 43.3 27.4
1930-38 2,197 37.7 1938 18.5 35.3 51.7 20.8
1951-60 2,842 26.2 1953 22.0 26.3 39.7 22.6
1961-70 6,434 47.3 1969 8.7 30.5 45.9 19.1

Panel B: Domestic and External Sources of Aggregate Supply and Demand Growth: Manufacturing and Mining (Ma), Gross Domestic Fixed Capital Formation (GDFCF), and Trade (TR)

Percentage Contribution to Growth due to: Trade Openness and Trade Growth [c]
Years Ma to Output Growth GDFCF to Effective

Demand Growth

Years Openness Growth in Trade
1888-1900 19.3% 17.9% 1885-89 6.9% 11.4%
1900-10 29.2 30.5 1890-1913 16.4 8.0
1910-20 26.5 27.9 1919-29 32.4 4.6
1920-30 42.4 7.5 1930-38 43.3 8.1
1930-38 50.5 45.3 1954-59 19.3 12.0
1955-60 28.1 35.0 1960-69 18.5 10.3
1960-70 33.5 38.5

Panel C: Infrastructure and Human Development

Human Development Index (HDI) [d] Electricity Generation and National Broadcasting (NHK) per 100 Persons [e]
Year Educational Attainment Infant Mortality Rate (IMR) Overall HDI


Year Electricity NHK Radio Subscribers
1900 0.57 155 0.57 1914 0.28 n.a.
1910 0.69 161 0.61 1920 0.68 n.a.
1920 0.71 166 0.64 1930 2.46 1.2
1930 0.73 124 0.65 1938 4.51 7.8
1950 0.81 63 0.69 1950 5.54 11.0
1960 0.87 34 0.75 1960 12.28 12.6
1970 0.95 14 0.83 1970 34.46 21.9

Notes: [a] Maddison (2000) provides estimates of real income that take into account the purchasing power of national currencies.

[b] Ohkawa (1979) gives estimates for the “N” sector that is defined as manufacturing and mining (Ma) plus construction plus facilitating industry (transport, communications and utilities). It should be noted that the concept of an “N” sector is not standard in the field of economics.

[c] The estimates of trade are obtained by adding merchandise imports to merchandise exports. Trade openness is estimated by taking the ratio of total (merchandise) trade to national output, the latter defined as Gross Domestic Product (G.D.P.). The trade figures include trade with Japan’s empire (Korea, Taiwan, Manchuria, etc.); the income figures for Japan exclude income generated in the empire.

[d] The Human Development Index is a composite variable formed by adding together indices for educational attainment, for health (using life expectancy that is inversely related to the level of the infant mortality rate, the IMR), and for real per capita income. For a detailed discussion of this index see United Nations Development Programme (2000).

[e] Electrical generation is measured in million kilowatts generated and supplied. For 1970, the figures on NHK subscribers are for television subscribers. The symbol n.a. = not available.

Sources: The figures in this table are taken from various pages and tables in Japan Statistical Association (1987), Maddison (2000), Minami (1994), and Ohkawa (1979).

Flowing from this table are a number of points that bear lessons of the Denison and Chung (1976) decomposition. One cluster of points bears upon the timing of Japan’s income per capita growth and the relationship of manufacturing expansion to income growth. Another highlights improvements in the quality of the labor input. Yet another points to the overriding importance of domestic investment in manufacturing and the lesser significance of trade demand. A fourth group suggests that infrastructure has been important to economic growth and industrial expansion in Japan, as exemplified by the figures on electricity generating capacity and the mass diffusion of communications in the form of radio and television broadcasting.

Several parts of Table 1 point to industrialization, defined as an increase in the proportion of output (and labor force) attributable to manufacturing and mining, as the driving force in explaining Japan’s income per capita growth. Notable in Panels A and B of the table is that the gap between Japanese and American income per capita closed most decisively during the 1910s, the 1930s, and the 1960s, precisely the periods when manufacturing expansion was the most vigorous.

Equally noteworthy of the spurts of the 1910s, 1930s and the 1960s is the overriding importance of gross domestic fixed capital formation, that is investment, for growth in demand. By contrast, trade seems much less important to growth in demand during these critical decades, a point emphasized by both Minami (1994) and by Ohkawa and Rosovsky (1973). The notion that Japanese growth was “export led” during the nine decades between 1880 and 1970 when Japan caught up technologically with the leading Western nations is not defensible. Rather, domestic capital investment seems to be the driving force behind aggregate demand expansion. The periods of especially intense capital formation were also the periods when manufacturing production soared. Capital formation in manufacturing, or in infrastructure supporting manufacturing expansion, is the main agent pushing long-run income per capita growth.

Why? As Ohkawa and Rosovsky (1973) argue, spurts in manufacturing capital formation were associated with the import and adaptation of foreign technology, especially from the United States These investment spurts were also associated with shifts of labor force out of agriculture and into manufacturing, construction and facilitating sectors where labor productivity was far higher than it was in labor-intensive farming centered around labor-intensive rice cultivation. The logic of productivity gain due to more efficient allocation of labor resources is apparent from the right hand column of Panel A in Table 1.

Finally, Panel C of Table 1 suggests that infrastructure investment that facilitated health and educational attainment (combined public and private expenditure on sanitation, schools and research laboratories), and public/private investment in physical infrastructure including dams and hydroelectric power grids helped fuel the expansion of manufacturing by improving human capital and by reducing the costs of transportation, communications and energy supply faced by private factories. Mosk (2001) argues that investments in human-capital-enhancing (medicine, public health and education), financial (banking) and physical infrastructure (harbors, roads, power grids, railroads and communications) laid the groundwork for industrial expansions. Indeed, the “social capability for importing and adapting foreign technology” emphasized by Ohkawa and Rosovsky (1973) can be largely explained by an infrastructure-driven growth hypothesis like that given by Mosk (2001).

In sum, Denison and Chung (1976) argue that a combination of input factor improvement and growth in output per combined factor inputs account for Japan’s most rapid spurt of economic growth. Table 1 suggests that labor quality improved because health was enhanced and educational attainment increased; that investment in manufacturing was important not only because it increased capital stock itself but also because it reduced dependence on agriculture and went hand in glove with improvements in knowledge; and that the social capacity to absorb and adapt Western technology that fueled improvements in knowledge was associated with infrastructure investment.


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Citation: Mosk, Carl. “Japan, Industrialization and Economic Growth”. EH.Net Encyclopedia, edited by Robert Whaples. January 18, 2004. URL