Kealey Chapter 7 Economic History Since 1870

I will probably come back later to post up some of the interesting points from the addenda to chapter 6, but will now press on boldly. There is still a long way to go (we are only up to page 75) and some of the analysis that follows is quite dense. The remaining chapters:

7. Economic History since 1870. 48 pages.

8. Science Policies in the 20th Century. 62 pages.

9. Why the Linear (Bacon) Model Fails. 33 pages.

10. The Real Economics of Research. 35 pages.

11. The S0-Called Decline of British and US Science. 36 pages.

12. Dr Pangloss was Right. 50 pages.

Getting back the economic history since 1870, this chapter is about the comparative economic performance of nations with some warnings about the valid and invalid comparisons that are often made. Invalid comparisons are often used to promote the Baconian approach to science with the aim of getting more state involvement by way of industry policy and public spending on science and education. A classic example is the comparison of Germany and Britain post 1870 which is generally supposed to show Britain in a  bad light due to rapid German progress in heavy industry, without noticing the inflated cost of German steel (for example)  that was made behing tariff walls with the aid of state subsidies. [This has a recent counterpart regarding the progress of the Soviet economy after WW2, measured by the “output” of heavy industry which prompted Paul Samuelson to write in his long-running and best-selling economics text that the Soviet economy was rapidly overhauling the US].

Kealey’s first example of misleading comparisons refers to the first and second Exhibitions of the Industry of All Nations. The first was in London, in 1851, and the second in Paris, in 1867. The idea was conceived in Britain to demonstrate that she was the Top Dog and the workshop of the world. It received the backing of Queen Victoria’s consort, Prince Albert, who loved that kind of thing and it was a massive success for England which won practically all the awards. The Paris exhibition was even grander, covering 40 acres compared with 20 acres in London, and – shock horror, Britain only won 10 out of 90 awards, being overtaken by France, Belguim, Germany and the US. This sent a shockwave through the British educational establishment, rather like the impact of the Russian Sputnik of 1957 (and with equally little justification).

Kealey pointed out that there are two explanations for Britain’s “dismal” performance in Paris, one related to the number of exhibits and the judging, the other related to the dynamics of comparative performance. On home turf Britain dominated the number of exhibits and probably got some “home town” decisions in the judging. In Paris other nations dominated in numbers (France alone had more than twice as many exhibits as Britain) and France got the home town decisions.

More significant than the vagaries of awards is the comparative dynamics. A nation that is far ahead cannot be expected to maintain the lead over others that are starting from a low baseline, especially when knowledge and technology are more or less freely shared, purchased, borrowed, copied and pirated. The parallel with economic development is obvious.

Kealey produced pages of figures and graphs to demonstrate the phases of development that all progressive nations follow (some do not, remaining stuck at the pre-takeoff stage, and that is a matter of political economy of course). His point is that the leading nations are made to look bad in comparison with the ones that are cathing up, even though the leaders are making the same or better progress in absolute terms, it just looks smaller as  a percentage. The larger point is that the defective analysis is always used by aspiring state planners (would-be Czars of various kinds) to justify more Baconian public control and spending.

There is a stunning table on the economic performance of the current (1980) 16 richest nations from 1870 to 1980. Guess who was Top Dog in GDP per capita in 1870! The figures are all adjusted to the $US in 1970.

Australia at 1393  led UK 972, Belgium 925, Holland 831, Switzerland 786, US 764.

At the other end, Japan 251,  Finland 384, Sweden 415, Denmark 572.

The table also indicates the average annual % of growth in GDP per capita, productivity (GDP/man hour) in 1870  and the average annual compound growth in productivity.

The table shows that the top dogs had high productivity at that time but lower rates of increase in both GDP/capita and productivity over the long haul. Australia’s productivity in 1870 was phenomenal, 1.3 compared with UK 0.8, Holland US and Belgium 0.7.

Australia was at the bottom on both the growth rates since that time. Of course this is not just the way things work for leaders (noted above) it is also a function of certain policies introduced at the start of the20th century, but Kealey did not pursue that (though it supports the argument of the book).

He has a lot to say about the way British people learned the wrong lessons from the comparison with Germany after 1870. That was the start of the Bismarkian warfare/welfare state and people were tricked by the apparent success of German industry and education policies. The inflated cost of German steel was noted above, so it made sense for England to produce less steel and buy it cheaper from German, still a lot of people just saw the decline of an industry, not wealth transfer from Germans to Britons. They also misread the play on technical education, being over-impressed by the network of state-funded technical colleges in Germany and forgetting about the industry-funded mechanics institutes in Britain. On the tech colleges, a team of British high school inspectors checked out the German system in 1991 and found that the content of the training was very poor, but was covered up by the Master Craftsman award which did not have an equivalent in Britain. “This qualification has high status in a nation obsessed with qualifications but the actual products are in practice no better than their British equivalents with their modest diplomas.” (116)

“Because the British Government did not create technical schools, it is often assumed that Britain lacked them, but the free market is perfectly capable of supplying education if it is needed. Between the 1820s and the 1840s no fewer than 700 Mechanic’s Institutes were set up, privately, in Britain to offer technical instruction but of course their costs were fully met by industry, because the artisan’s fees (or loans to meet the fees) were ultimately translated into higher wages”. (117) [that actually looks like the costs being met by the artisans rather than the industry].

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4 Responses to Kealey Chapter 7 Economic History Since 1870

  1. ken n says:

    Rafe – I am interested – please give us more information

  2. Rafe says:

    Try this one!

    He will be in Sydney next month for Mont Pelerin!!

  3. ken n says:

    Ah OK, thanks Rafe

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