It is useful to begin my review of Lars Magnusson's thought-provoking new work by comparing it with a recent contribution by Robert Allen (The British Industrial Revolution in Global Perspective. Cambridge: Cambridge University Press, 2009). According to Allen, the state's role in the process of modern economic growth was secondary at best. The Industrial Revolution in Britain reflected a “perfect storm” alignment of interest rates, energy prices, wages, and land rents. By contrast, Magnusson (who is professor and chair of economic history at Uppsala University in Sweden) argues that the emergence of modern states and the Industrial Revolution were fundamentally linked. The state was an active participant in the establishment and development of modern capitalist economies.

Magnusson thus revisits a common view of the Industrial Revolution as a feat of free markets alone. In Chapter 2 he characterizes pre-nineteenth-century states as “soft” (or “weak” in the parlance of the current political economics literature), with unpredictable and ad hoc political and administrative procedures and, in consequence, high transaction costs for economic activity. Magnusson argues that differences in state capacity are a key reason why industrialization failed in fifteenth-century Italian city-states and the eighteenth-century Netherlands but later succeeded in Britain. In his view, the nineteenth century was a period of reregulation (rather than simple deregulation) towards more powerful and effective state institutions. Explicit in his account is a reinterpretation of Adam Smith's stance on government, which he views as pragmatic rather than anti-state.

Chapters 4 to 6 form the core of Magnusson's analysis. Using case studies, he describes the diverse ways in which nineteenth-century states promoted economic growth. In Chapter 4, Magnusson examines three early industrial movers (Britain, Belgium, and France), in Chapter 5, four latecomers (Germany, Austria, Italy, and Sweden), and in Chapter 6, one offshoot (the United States). In all cases, Magnusson argues that governments went beyond the simple establishment of the “rules of the game” à la Douglass North. States built infrastructure for transportation and communications, provided capital for new businesses, operated important national enterprises, enacted protectionist trade policies, and pursued macroeconomic policies that mitigated financial slumps.

In this regard, Magnusson attempts to generalize the classic work by Alexander Gerschenkron, who argued that government intervention was only necessary for those countries playing catch-up. For instance, though Britain (and later the United States) and Germany are often depicted as ideal representatives of market-led versus government-led industrialization, Magnusson provides anecdotal evidence that the state played a larger role in Britain, and the market a larger role in Germany. He concludes that there were key interactions between states and markets at either extreme.

Importantly, Magnusson links industrial strength with military prowess, imperialistic ambitions, and international trade. States did not pursue activist economic policies for the sake of intervention alone, but as a means to increase their influence and power. Magnusson also embeds the Industrial Revolution within a larger process of social transformation. The author should be commended for his effort to disentangle, in many diverse contexts, the complex relationships between states and markets in the establishment of modern industrial economies.

To make his case, Magnusson draws exclusively on qualitative sources. He often refers to statements by contemporary political economists, politicians, inventors, and laborers. Magnusson will not engage in counterfactuals, and refuses to ask whether interventionist outcomes were efficient. In the book's conclusion, he again refers to the stated beliefs of public actors as proof that economic intervention by nineteenth-century states had positive growth effects. The key fault of Magnusson's approach is that it does not employ more rigorous methods to test his claims. Clearly, it is difficult to establish what would have happened in an alternative, noninterventionist world. However, a robust quantitative analysis would have been a worthy step in that direction.