Institutions as incentives and disincentives

On the one hand, it is clear that given sufficiently repressive institutions, growth can be stifled. Three aspects of the former USSR seem important here: a perverse pricing system that led to waste rather than economization of resources; an incentive structure for producers that led to shoddy production of unchanged products because the main reward came from fulfilling quantity-of-output targets with little attention to quality; most importantly, an incentive structure that severely penalized unsuccessful attempts at innovation, while providing few rewards for successes.

Two points need to be made about such institutional disincentives to growth. First, they are not either-or characteristics but matters of degree. The degree to which centrally administered prices encourage inefficiency can vary with the design of the system and its responsiveness to market conditions. The extent to which institutions emphasize quantity rather than quality of output can vary between wide extremes. The disincentives to invention and innovation are also variables. However, since innovation is a necessary condition for long-term growth, the absence of institutions that come close to totally repressing the incentive to innovate is a necessary condition for continued innovation. But as long as some innovation is tolerated and rewarded, there is a wide range of institutional arrangements that are compatible with growth. Consider, for example, the wide range of policies that encourage and discourage invention and innovation in market economies that are currently growing.Footnote ¹¹

Second, one specific inhibiting institution is usually not enough to stop growth (with the exception of an institution that more or less totally inhibits innovation) since examples of most can be found in successful countries as well as in unsuccessful ones. The observation of a wide range of societies over history that went through long periods, often covering centuries, without significant growth suggests that there are sets of inhibiting conditions that are sufficient to stop growth. But this set is not unique, as different non-growing societies have not all had the same set of institutions.

However, there are institutions that clearly encourage growth. Some in fairly immediate ways, such as high rewards for invention and innovation, and some in more diffuse but nonetheless important ways, such as respect for the rule of law, and pluralistic governmental and business institutions. Countries with a wide range of institutions and policies have succeeded in growing sufficiently to remain in the top tier of high-income countries, as, for example, a comparison of welfare provisions (in the widest sense) between the US and many European countries will demonstrate. So, as with institutions that inhibit growth, there are many that encourage it and any one is probably not sufficient but neither are all of them necessary. So there are many subsets of the helpful institutions that are sufficient to encourage the stream of inventions and innovations needed to sustain growth in the long term.

Finally, and probably most important, new technologies require new institutions to support them. Without these institutional innovations, growth might slow to a halt, because, if new technologies are not exploited, further inventions and innovations that build on them are unlikely to occur.

In summary, because steady streams of inventions and innovations are necessary and sufficient, one might be tempted to argue that technological change is more important than institutions. But if we go behind invention and innovation, we find another set of necessary conditions for invention and innovation not to be stifled: the absence of a set of harmful institutions sufficient to suppress either of these necessary activities and the development of institutions that accommodate the new technologies. We also find a string of conditions in the form of bundles of other helpful institutions that generally encourage invention and innovation without one specific one of them being either necessary or sufficient.

Note that this absence of a clear causal link between growth and any one institution (or a small set of related ones) makes it extremely difficult to measure the importance of institutions empirically by correlating the existence and non-existence of a selected set (usually containing two or three items) with various national growth performances.Footnote ¹² This absence also lies behind the endless debates of whether some specific institutions, such as pluralistic political and economic structures or well-developed property rights, are necessary for growth. It follows from the above arguments that although these and other similar ones may encourage growth, none of them is necessary. Thus, there is no paradox if their presence (absence) is noted in some societies that grow and some that do not.

From what has been said above, we should not be surprised to find that technology and institutions are linked in a system of mutual interaction. The evidence for this is voluminous. I look first at the causal link from technology to institutions, then at the reverse link from institutions to technology. It must be remembered, however, that they typically co-evolve.

New technologies induce institutional changes

New process technologies often require institutional re-organization before their full potential can be realized. For example, the early medieval European villages used a two field system in which individually owned plots could be farmed independently. When the heavy plough was introduced, the difficulty of turning the large team of draft animals needed to draw it led to an organizational innovation: the strip system in which individual holdings were spread out in long, sometimes widely separated, strips. Managing production in this environment required collective village decisions about when to plough, plant, and harvest. This new requirement for coordinated, collective decision making had profound effects on the social and political institutions of European villages, causing these to differ greatly from those of villages where the heavy plough was not necessary for wheat farming or where rice or corn were the staple crops.Footnote ¹³

New technologies often require new kinds of human capital and new institutions, or revised forms of existing ones. For example, the forms of business organizations that grew up with the mature First Industrial Revolution required a large force of literate, numerate clerks who could, among other things, ‘copy out the letters in the hand so free’.Footnote ¹⁴ Later the computer age required a somewhat different type of literacy and numeracy among a much larger proportion of the work force ― a demand that has been much better satisfied in some countries than others, to the benefit of the former.

New management structures are often required to make new process technologies work efficiently. For example, the capital intensive forms of Mesopotamian hydraulic agriculture that were enabled by the invention of writing in the late fourth century BC required centralized decision taking with respect to investment. The priesthood developed the array of institutions needed to make and enforce such decisions efficiently, including a strict division of labour, regular taxes, and book keeping. They also developed a highly efficient command system in which work was accounted for and food distributed by the priesthood using a sophisticated set of accounting prices.Footnote ¹⁵

Bronze introduced scale economies in warfare because a large phalanx of well-drilled soldiers, wielding bronze spears and protected by interlocking bronze shields, could outflank, surround, and destroy a smaller army with little loss to itself. As a result, the age of imperial wars began (and survived until the mid twentieth century),Footnote ¹⁶ the city states expanded into multi-city empires; market transactions became important because the command economies of the city states could not cope with the economic needs of multi-city jurisdictions; and the leaders in war, the kings, slowly supplanted the priests as rulers. The range of institutions that were ultimately created or altered because of the use of this material and all the technologies that depended on it was so vast that the whole period is referred to as the ‘Bronze Age’. This must come close to being history's greatest example of institutional changes brought about by a new technology.Footnote ¹⁷

For a final example, electronic computers added little to productivity when they were first installed in a structure designed for paper records and verbal communications. Slowly over time, the organizations of management, and production were drastically altered to take advantage of the power of computers. Electronic data archiving, retrieval, and manipulation slowly took the place of paper systems for filing and transmitting information. Firms became flatter and less hierarchical in organization. Computers also revolutionized practices in design departments and on the shop floor.

New technologies typically require new infrastructure and supporting institutions. For example, the internal combustion engine enabled cars, trucks and airplanes, all of which required a massive infrastructure in such things as roads, airports, guidance, and control systems, as well as everything that was needed for the discovery, manufacturing, and distribution of petroleum products. Similarly, electricity required very large investments in production and distribution systems. Many new institutions were required to create, operate, and sometimes provide government control of such infrastructure.Footnote ¹⁸

Major new technologies typically present many challenges to governments looking for helpful reactions. Old policies become irrelevant or even harmful and new policies are needed as well as the institutional structures to give them effect. In earlier times, competition policy could be guided by national concentration ratios. But globalization (itself the result of two major groups of new technologies that reduced shipping costs dramatically and allowed activities to be coordinated worldwide) has made such indices largely irrelevant. A local ‘monopoly’ may be in fierce competition with other local ‘monopolies’ located in several different countries.

Individual governments and international organizations can monitor and control the production of nuclear armaments due to advanced means of surveillance. This makes it possible to have policies with respect to certain armaments that were impossible when such activities could be kept secret.

At the end of the twentieth century, biotechnology presented difficult policy issues concerning what should be patentable. Ethical considerations related to such contentious issues as choice of a child's sex (legal in the US and illegal in Canada), cloning, and brain stem research (mainly illegal in the US and legal in the EU). These led to debates and legislation that controls development and in some cases slows it. Similar problems will no doubt arise with nanotechnologies.

Today, new organizational structures are needed to create and enforce international cooperation caused by globalization and to apply a host of new policing techniques, such as genetic identification and TV camera surveillance.

Intuitional changes induce changes in technology

So far, we have seen how public policies, and the institutions needed to give them effect, often must be changed in response to changes in technology. But causal forces also work in the opposite direction, in that public policy and its institutions influence technological change.

This may be done directly through such policies as R&D subsidies and tax credits. It may also be done indirectly. Monopolies many be broken up with the intention of inducing more inter-firm competition in innovation. Tax, education, and the research systems may be altered to encourage more entrepreneurial activities. Technological change may also be affected inadvertently when, for example, policies designed to protect the environment lead to a burst of innovative activities, or when controls designed to support the exchange rate inhibit the importation of new technologies embodied in foreign-produced capital goods. Policies with respect to inputs, may also have indirect effects on technology – usually inadvertently. For example, prohibition of clear-cut logging and certain mining practices have led to innovations to improve the efficiency of those production methods that are still permitted.

Importantly, few major modern technologies have been developed without substantial public sector assistance in early stages of their development.Footnote ¹⁹ The list includes commercial aircraft, computers, lasers, biotechnology, and nanotechnology. Such institutions as publicly funded research bodies, including universities and research laboratories, are active in most countries. In many countries, some of the assistance comes directly from the government. In the US, it often comes through the procurement activities of the Department of Defense. Currently, there is debate in the US about what further institutions are needed to maintain the American prominence in developing new technologies.Footnote ²⁰

A prime example of how institutions can influence technological change is the post-war Japanese automobile industry. At the end of World War II, there were several Japanese producers of motor vehicles. MITI, the Japanese Ministry of International Trade and Industry, refused to allow US firms to produce in Japan. If they had not done so, the Japanese automobile industry would in all likelihood have become a branch of US industry as happened in Canada. The protected Japanese market was too small for the many competing Japanese firms to reach efficient scale using US mass production technology. In two decades of induced innovation, the Japanese, led by Toyota Motors, invented a whole new system of design, production, and sales, often called lean production. This system greatly reduced the minimum scale needed to achieve efficiency and, in the process, reduced production costs and design times, often in totally unexpected ways. After perfecting their new techniques, the Japanese firms went on the challenge the world with their new and efficient cars. This is a wonderful example of institutionally induced technological change, where the institution provided the opportunity, while private initiative responded with its inventive and innovative talent.Footnote ²¹

The climate: pluralism versus centralization

The West's pluralism developed throughout the Medieval period but it had its roots in earlier times. In an important historical accident, of which there are many in our story, Christianity was initially spread by persuasion. It had to make its way in the highly sophisticated world of the Roman Empire and, as a result, the church fathers became versed in contemporary learning. When Christianity finally became the official religion of Rome in 391 AD, the government of the empire was well established so that a separation of power between the lay and the religious authorities was the only mutually acceptable arrangement.

In contrast to all this, Islam was spread through conquest in the first century of its existence. As a result, religion and government were unified in a theocracy, a form of government that is still found in many Islamic countries. Also, no attempt was made to convert the conquered people, most of whom voluntarily adopted Islam in their self-interest over the next couple of centuries. (Although other religions were tolerated, many laws and practices favoured believers over infidels.) Thus, there was no pressure for the religious authorities to become knowledgeable in contemporary learning and they largely remained aloof from it. These Islamic governing institutions gave religious extremists much more influence over non-religious matters than in the pluralist states of the West. Although religions extremism was no less a force in the West than in Islam, its targets differed. Because the Catholic church had embraced Greek science, the destructive force of Western extremism was directed at other groups, such as heretics and usurers, rather than natural philosophers. In contrast, because Greek science was regarded as suspect by the Islamic authorities, the force of extremism was often directed at natural philosophers and institutions, such as the observatories and hospitals, where they resided. Because it was a vast empire that was difficult to control from the centre, there was substantial pluralism in various activities in various parts of the Islamic empire, particularly in the Islamic parts of Spain. But the political-religious unity in the theocratic form of government contrasted with the constant stress between church and state in the West and this had lasting effects – effects that eventually contributed to the suppression of the centuries-old tradition of advancing science and technology in the Islamic countries, which included the destruction of the major observatories and hospitals by religious extremists.

Unlike the West's pluralism, China had a highly centralized form of government in which all authority stemmed from the emperor. When the emperor commanded, the country followed, as when China was closed to outside influence by official decree in the sixteenth century, banning all foreign travel and trade.Footnote ²⁷

It is important to keep in mind my thesis that although some set of favourable institutions is necessary for sustained growth, no one element in what ever set did the job, was either necessary or sufficient. Thus, although pluralism was an important part of the Western set, there is no contradiction in it existing in many other places that did not produce sustained growth – as it no doubt did.

The seeds: the drive to mechanizeFootnote ²⁸

The seeds of all technological flowers lie in the human propensity to innovate that we discussed in an earlier section. These generalized seeds took one specific form in the European drive to mechanize productive activities during and after the medieval period and after, a drive that eventually led to the Industrial Revolutions.

For one example, the water wheel that had been used to grind grain for centuries was adapted in the medieval period to mechanize a wide range of activities, making use of the newly invented cam that turned rotating motion into reciprocal motion.Footnote ²⁹ Early uses of water wheels in Europe, together with the dates at which this use of each has been first substantiated, include: making beer (987), treating hemp (1040), fulling cloth (1086), tanning leather (1138), sawing logs (1204), making paper (1238), grinding mustard (1251), drawing wire (1351), grinding pigments (1348), and cutting metal (1443).Footnote ³⁰

Importantly, the iron industry was transformed by water power. Stamping mills broke up iron ore prior to smelting. Trip hammers forged the blooms. Water-wheel driven bellows allowed blast furnaces to become hot enough to melt iron so that it could be cast just as bronze had been for millennia. Cast iron became an important new product with many uses. Note also that although the Europeans did not invent paper, shortly after it was introduced from the East, Europeans replaced the production methods that have existed everywhere since paper's initial invention by mechanizing it.

A later example is Leonardo di Vinci's program to mechanize all aspects of textile production. As we have seen, this began a trajectory of mechanization that lasted several centuries and eventually led to the First Industrial Revolution.

The soil: medieval institutions

Four key institutional developments that occurred in the second half of the Medieval period provided the rich soil in which the plant's roots were established: the rise of a pluralistic and evolutionary concept of law, the development of the concept of the corporation, pluralism in government, and the development of universities. Although we must discuss them separately, their evolution was interrelated.

The legal revolution:Footnote ³¹ After the victory of the church over the kings in the investiture controversy (1050–1122), the church created a body of cannon law, including the new concept of natural law. This was rooted in both divine revelation and in human reason. Because natural law is also God's will, neither the King's nor the church's law is superior to it. This was a major achievement in that reason and conscience was held to be at least as important as royal proclamations and revelation ― a proposition unthinkable both in Islam and imperial China.

Western law was now able to evolve and adapt to changing circumstances. In contrast, thinkers of many other religions, including Islam, held that laws had been laid down for once and for all by prophets and could only be changed when they had been misinterpreted or misunderstood. In China, laws could be changed, but only when the emperor willed it. This European split between civil and ecclesiastical law gave rise to the concept of degrees of jurisdiction absent from both Islam and China.

The concept of a corporation: One of the West's greatest institutional innovations was to develop the concept of a corporation, separate from the state and distinct from its members. This gave the corporate body a life that stretched beyond that of its current members and facilitated the development of a body of rules, practices, and standards that had not only continuity, but also flexibility. Corporations also encouraged pluralism by creating a split between civil and ecclesiastical law on the one hand, and the corporate law on the other. No equivalent institution developed in either Islam or China.

Medieval universities: The West's early teaching institutions evolved into universities, first as mere collections of scholars and then as corporations. The corporate structure provided a neutral space where new ideas could be developed more or less free from state and religious censure. It also allowed the development of curricula and examination standards that were more than just the expression of the views and whims of the current staff.

It has been argued (Makdisi, Reference Makdisi1981) that the concept of a university, as a place where scholars and their pupils gathered to study the full range of known scholarship, was an Islamic invention. Be that as it may, Islamic universities remained collections of scholars, each one of whom set his own standards and issued his own certificate of competence to his students. So they never developed the corporate structure that was critical in protecting Western universities from excessive outside interference. Thus, as with so many other innovations, the West was not the original inventor; instead it critically improved on technologies and institutions that it had copied from elsewhere.

The Western universities taught many subjects, but, most important from our point of view, was the enormous importance put on Greek science that was taught to, and debated by, the entire body of students in the arts faculty. Through its universities, ‘the West took a decisive (and probably irreversible) step toward the inculcation of a scientific worldview that extolled the powers of reason and painted the universe – human, animal, inanimate – as a rationally ordered system’ (Huff, Reference Huff1993: 189). In contrast, because Greek science was suspect in Islam, it was largely taught outside the universities by isolated scholars, instead of being at the heart of the university curriculum as it was in the West. In China, educational institutions took their curriculum almost exclusively from the examinations to enter the imperial bureaucracy. Although these were highly sophisticated, they were almost totally devoid of scientific content.

The roots: medieval science

When lay learning more or less disappeared in the centuries following the dissolution of the Western Roman Empire, learning was maintained and cultivated by the monasteries, carrying on the tradition of learning within the church that was established in the early days of Christianity in the Roman Empire. So, when the lay interest in education arose in the eleventh century, clerics were prominent in helping it to develop. Clerics taught first in the schools and then in the universities, while students were granted temporary clerical status.

In yet another important historical accident, the Greek works that were available in the early stages of the Western revival of learning were all in the form of Latin translations. These included the works of Plato and many others, but not Aristotle. Plato's mysticism sat easily with Christian doctrine, while many other Greek works on such subjects as astronomy, mathematics, medicine, and logic were of obvious practical value. During this time, the church, led by the scholastic philosophers, became committed to the view that there was no conflict between Christian dogma and Greek science, and both were taught to all students. Then much later on, the works of Aristotle became available in new translations. Here there was obvious conflict because of Aristotle's views, such as that the world had no beginning and no end and that the soul died with the body's death. After a major doctrinal battle that lasted almost a century and in which Thomas (later Saint Tomas) Aquinas was central, those who supported Greek science as compatible with Christian doctrine won the day.

Aristotle's naturalistic doctrines were placed at the centre of the arts curriculum and were important in developing the religious-intellectual mindset of the Medieval period. ‘Anyone who reads these works [of Aristotle] or compares them with the philosophical writings of China cannot fail to see the uniqueness of the Aristotelian emphasis on explaining the natural world in terms of fundamental elements, causal processes, and rational inquiry’ (Huff, Reference Huff1993: 335). When this had been done, ‘a powerful, methodologically sophisticated, intellectual framework for the study of nature had been institutionalised’ (Huff, Reference Huff1993: 337). By the fourteenth century, most Western academics and church thinkers regarded the world as subject to natural laws, which had been promulgated by God and were meant to be discovered by his human subjects. Thus doing so was a reverent activity.

In contrast, when the Islamic religious authorities decided to translate Greek learning into Arabic (and in the process greatly enriched that language), they immediately encountered Aristotle. Not surprisingly, therefore, his works were rejected and Greek science was placed in an inferior position to the knowledge from the Koran. Science was tolerated where it was useful, but not taught in the universities. Also, after much debate, Islamic thinkers accepted the doctrine of ‘occasionalism’, that God recreates the universe each day. If effect B follows cause A today, it may not do so tomorrow because God may will differently. It followed that to attempt to discover laws that predict the future behaviour of natural things was an attempt to predict what God would do in the future. That was a blasphemous activity.

We can only speculate as to what would have happened if the early Christian thinkers had encountered Aristotle as soon as they began to explore Greek learning. At the very least, those who felt that Greek science should not be placed on a par with religious knowledge and those who favoured rejecting it completely would have had a much stronger case. They might well have won the day with anti-intellectual consequences similar to those that ensued in the Islamic world. Such historical accidents illustrate that there was no direct and inevitable road that led from the dissolution of the Roman Empire to the Industrial Revolutions of the eighteenth and nineteenth centuries.

We now come to what my co-authors and I argue is the most important contribution that the Western universities made to Western science. All cumulative advances require some form of ‘memory’ so that present advances can build on those of the past. Artefacts provide an unplanned, and unmanaged, memory for technological knowledge. They have a physical existence and improvements are embodied in better artefacts to be used and improved in their turn. In contrast, there is no automatic memory for scientific knowledge. Creating an institutional memory for science was an important contribution of the Medieval Western universities: it was recorded in libraries; it was taught in class rooms; scholars contributed to its evolution.Footnote ³²

Because the institutions to provide continuity were lacking in both China and Islam, many scientific discoveries were made but subsequently forgotten.Footnote ³³ The impressive list of Chinese scientific discoveries, many of which were subsequently forgotten, is too long to include here. A partial list would include, advances in mathematics, understanding fossil evidence, and advances in optics. But none of these discoveries was pursued in ways that established sustained cumulative trajectories.

Europe was not unique in its early scientific and technological discoveries, many of which were made even earlier in China and Islam. But what was unique in generating the incremental, cumulative advances that were necessary to produce modern mechanistic science, which was the science of the First Industrial Revolution, and the more advanced science that was necessary for the Second Industrial Revolution, was the institutional memory provided by the medieval universities.

The contrast between physical memory for technologies and institutional ‘memory’ for scientific discoveries is important in answering the question: Why is it that other regions in the world, especially those with important historical achievements in science and technology, failed to produce modern mechanistic science and the sustained innovations that came to depend on it and that were the basis of the First Industrial Revolution? Our answer is that they lacked the independent institutions that provided an effective memory needed for cumulative scientific advances. This is why there is no contradiction in the Chinese being close to the West in technology (and many other facets of civilization) in 1700 as argued by Pomeranz (Reference Pomeranz2000), but already far behind in science.

The stem: three trajectories

The transition to sustained growth brought about by the two Industrial Revolutions was to a great extent the result of the culmination of three trajectories that combined scientific and technological developments over several centuries.Footnote ³⁴ The first was the steam engine whose modern trajectory began in the sixteenth century with investigations into the nature of steam and of vacuums and culminated with the development of the high-pressure engine at the beginning of the nineteenth century. The second was automated textile machinery, whose research program was charted and begun by Leonardo di Vinci late in the fifteenth century and culminated when the centuries-long trajectory of myriad inventions and improvements produced machines that it paid to transfer textile production from cottages to proto-factories in the latter part of the eighteenth century. The third was electricity whose modern development began with the publication of Gilbert's De Magnete in 1600. It put the West decisively ahead of China in understanding magnetism and electricity by making it a science rather than a piecemeal collection of individual observations.Footnote ³⁵ This began the long chain of linked discoveries that eventually led to the invention of the dynamo in 1867.

In this context, it is important to remember that the existence of a trajectory does not imply historical inevitability. A trajectory is a path-dependent process in which each step is influenced by the preceding steps, as, for example, each new scientific discovery and technological invention builds on previous discoveries and inventions. But although the next step is influenced by the past steps, its size and direction are not inevitable. For example, when we decide to develop some forms of alternative energy, what we are able to do depends partly on what we have done and learned in the past. But there is nothing inevitable as to whether we put our major efforts into geo-thermal, wind, or solar power, or equally among all three. The past will influence what we are able to do along these lines, but it does not determine which line we take.Footnote ³⁶

The leaves: early science and technology

For the scholastic philosophers, a priori reasoning was the major road to new knowledge. The early modern scientific revolution was based on a change in method: accepting experiment as the way to settle debates about empirical issues. As a result, early modern science developed mainly through piecemeal empirical discoveries concerning issues that had been long debated by the scholastic philosophers. While new answers were given, the investigators were continuing a research agenda laid down by the scholastics. Importantly, ‘a scientific revolution could not have occurred in Western Europe in the seventeenth century if the level of science and natural philosophy had remained what it was in the first half of the twelfth century. . . .’ (Grant, Reference Grant1996: 170).

In the first two centuries (the sixteenth and seventeenth) of the three main technological trajectories that led to the Industrial Revolutions, investigators settled many issues that had been debated for centuries and at the same time made technological applications of what they discovered. Indeed, these two activities were not distinguished and were typically done by the same person. The distinctions between pure science, applied science, and engineering did not emerge until the last half of the nineteenth century: ‘We separate science from religion, science from technology, theories from practices. They did not’ (Jacob, Reference Jacob1997: 104).

We detail these interrelations in LCB Chapter 7. I only have space here for one illustration. Investigations into the nature of steam began in the sixteenth century. It was originally thought that steam was just a form of air. Early work by Cardan and Porta provided a better understanding of the relation between the two. De Caus (1576–1630) showed that steam was a form of water that returned to its liquid state on cooling. Pascal and Torricelli's showed that the atmosphere had weight. Otto von Guericke produced the first workable airtight cylinder and piston, which provided a technological advance that was necessary for the subsequent development of engines first driven by atmospheric pressure and then by steam. ‘The discovery of the atmosphere thus profoundly affected the development of science . . . [and] it was no less important in its impact on technology’ (Cardwell, Reference Cardwell1971:11). Although none of these early discoveries resulted in scientific laws as we now understand them, and although many seem obvious to us today, they ‘were scientific discoveries of the utmost importance. They were the principles upon which the work of Worcester, Savery, and Papin [who developed the first engines that used steam and air pressure] was largely based’ (Usher, Reference Usher1988: 343).

The new world view of a mechanical universe that was generated by the scientific discoveries of the Early Modern Period reinforced the long-standing European interest in mechanizing human activities wherever possible – an interest illustrated by our earlier discussion of the windmill and textiles. As the accumulating evidence slowly refuted much of Aristotle's writings, a new overarching framework was required to systematize the new knowledge and Newton's Principia (1687) provided it. Its laws of motion were the first modern scientific laws as we understand them. They explained in mechanical terms the behaviour of all things in the universe. They were ‘used not merely to calculate the movement of heavenly bodies, but also in practical arts such as navigation, cartography, ballistics, mining, and surveying, and these gave rise to the craft of instrument-making: the manufacture of telescopes, microscopes, barometers, chronometers, micrometers, dividing and gear-cutting engines, etc.’ (Musson and Robinson, Reference Musson and Robinson1989: 23).

With the invention of the calculus, the mathematical language of Newton's general laws, science and technology took a decisive step by providing the mathematics of instantaneous motion and rates of change at a point in time and space. Its impact was revolutionary. It provided a mechanical world view that influenced most of science over the next 200 years. Its practical applications influenced many subsequent generations of innovators, particularly in Britain and later throughout all of Europe. ‘In the eighteenth century, thanks primarily to Newton's work, mechanics became an organized body of readily accessible knowledge’ (Jacob, Reference Jacob1997: 8). In our view, Newtonian mechanics provided the intellectual basis for the First Industrial Revolution, which was almost wholly mechanical.

The scholastic philosophers had taught that God created the universe and its laws and endowed humans with free will. It seemed to the British that Newton had completed the research program started by Aristotle and continued by the scholastics: discovering the laws of God that governed everything in the physical universe. Whereas the Catholic Church on the continent was still rejecting the Copernican heliocentric view of the universe (as were many of the early protestant reformers on the continent such as Calvin and Luther), many British clerics were preaching it from the pulpit as revealing the grandeur of God's creation. These laws were also spread throughout the land by a band of lecturers who taught science to ordinary citizens to an extent that would be unthinkable today.Footnote ³⁷

The flower: the industrial revolutions

The influence of mechanistic science was felt not just in the development of machinery, but also in canals,Footnote ³⁸ harbours, mines, and a host of other applications. The role of science in all of this was not that of general laws leading to the development of specific applications. Instead, it permeated the thoughts and attitudes of ordinary people, providing them with the theoretical mechanics and the practical mathematics that facilitated technological change. This illustrates the fusion of theoretical and applied science, as well as engineering, that characterized the scientific world until well into the nineteenth century.

The early part of the Industrial Revolution was not produced by the invention of radically new technologies. Instead, it was, as we observed earlier, the end result of technological trajectories that stretched over several centuries, most importantly, the trajectory marked out by Leonardo di Vinci (1452–1519) who conceived a program to mechanize most of the operations in the textile industry. His vision was slowly realized over the next three centuries by a host of piecemeal discoveries and innovations. By the late eighteenth century, the program had progressed far enough that it paid to transfer textile production from cottages to proto-factories – the putting out system that had lasted for several centuries was being replaced by an evolving factory system. No central authority had to engineer this change, it came about through market forces as innovators sought new sources of profit. (This illustrates the importance of another institution, the market. From the Bronze Age onwards, markets have played an important role in Western civilization, sometimes waxing and sometimes waning in importance, but never disappearing altogether.)

Some economic historians have characterized the inventors of these mechanized textile machines as ‘tinkerers’ who made mere ‘gadgets’. I mention this because those views contribute to the belief that any group of people anywhere in the world could have produced the First Industrial Revolution solely by empirical trail and error. In reply, I would like to make the experiment of taking apart one of the 1790-vintage, automated textile machines and asking one of these historians to reassemble it. Perhaps after that he would agree that these were, for their time, engineering masterpieces; machines that took several centuries to be developed under the guidance of very skilled and sometimes highly educated inventors and innovators.

By the early nineteenth century, developments in the three-century long trajectory that led to efficient steam engines had gone far enough that it became efficient to replace water and human power with steam power. Once again, no decree from the Emperor or the Pope was needed here, the market provided sufficient incentives to innovators seeking private profits. Production moved from sheds and water-powered mills to steam-powered factories. New machines and new factories had to be designed and built. Metal replaced wood in most machines and a whole new machine tool industry was developed. Industry became more concentrated as the scale economies of steam-powered factories required much larger productive units than did water power. Freed from the need to locate near fast-moving water, factories were moved to the new industrial towns. Major adjustments to the whole structure of the economy were required as masses of people followed, urbanizing the society to an extent not seen since Classical times. Fuel, raw materials, and finished goods, needed to be transported. This required an extensive network of canals and railroads. The new modes of transport introduced by the railway and later by the iron steamships altered many economic relations. The changes also initiated rising wages as steam power served to raise productivity. The age of steam was in full flower.

So the First Industrial Revolution produced radical changes in society, its institutions, and its infrastructure. As we have seen, however, it did not result from a sudden radical change in technology. Its technologies of textile machinery and the steam engine were the result of centuries-long trajectories of incremental improvements and a few radical changes made by a long line of inventors and innovators.

During the Second Industrial Revolution, starting in last half of the nineteenth century, industrial development was lead by many non-mechanical sectors that were heavily science-based. Chemicals and steel were two of its key products, while electricity and the internal combustion engine were its new energy sources. Advances in chemistry, especially as it was applied to textile production, were particularly important in supporting continuing innovations in such products as dyes, bleaches, detergents, and fertilizers. All of these, and many more products and processes, required applications of fairly advanced Western science. As Rosenberg and Birdzell (Reference Rosenberg and Birdzell1986: 252) put it:

The flower becomes a perennial

Ever since humans ceased to be hunter gatherers during the Neolithic Agricultural Revolution, there have been bursts of growth, often based on the invention of some major new technology. But these have been episodic, usually petering out in decades, although sometimes lasting for centuries. What was different this time was that the growth became self-sustaining, building on itself in a positive feed back loop in which each scientific invention and its technological applications led to others in, as far as we can see, a never-ending evolution.

Three developments, two of them institutional, were key in allowing the growth initiated by the Industrial Revolutions to be sustained. First, as noted above, science and technology became increasingly linked. Not only did science contribute in a general way to technological developments, as it had in the past, new technological innovations increasingly stemmed directly from new scientific discoveries. Second, science itself began to develop much more rapidly as its teaching and advancement became institutionalized, particularly in universities. The number of practicing scientists increased exponentially over the decades of the late nineteenth and much of the twentieth centuries. As a result, the rate of advancement of scientific knowledge increased dramatically over what it had been throughout all earlier times. Third, firms, often operating in oligopolistic market structures, competed with each other by inventing and innovating new products and processes. As a result, technological invention was institutionalized with the development of the applied research laboratory. The ‘invention factory’ established by Thomas Edison at Menlo Park in 1876 ‘is usually credited with pioneering the organization of invention in the field of communications and electricity’. (Rosenberg and Bridzell, Reference Rosenberg and Birdzell1986: 249). Many firms followed Edison's example and by the turn of the century the involvement of industry in organized R&D was significant and growing. David Mowery (Reference Mowrey1981: 51) has shown that 112 research laboratories had been established in the US manufacturing sector alone by 1898 with another 553 being established by 1918.

Today, R&D is a major activity encouraged by significant tax incentives in most Western countries. Large oligopolistic firms in many branches of manufacturing and service industries engage in organized research as a major weapon in competition with their rivals. These efforts are conspicuous in drugs, medical supplies, aeronautics, transport equipment, lumber products, agricultural machinery, information and communication technologies, and biotechnology, to mention but a few of the most obvious examples. Also, small start-up firms on the cutting edge of new technologies do significant amounts of applied research.