Universit Ca' Foscari di Venezia Course: Global History, A.Y.

2011/2012, Term 1

Collective invention as the engine of Great Britains economic growth during the First Industrial Revolution
Santagiustina Carlo R. M. A. carlosantagiustina@msn.com

ABSTRACT
This paper deals with the clusters of innovations (CoIs) and micro improvements (MI) that first took place in Great Britain (GB) between the 18th and the 19th century, as core prerequisites and determinant factors for the emergence of the 1st Industrial Revolution (IR). Economic progress during the IR in Great Britain (GB), is the fruit of such a wide and intricate web of causes, that to stand under the flag of only one of them would certainly be a misleading interpretative path, especially given our purpose of building a logically coherent and cohesive overview of the links between the major economic transformations that took place during the IR in GB. The reading key of this paper is based on the notion of collective invention, as a post-malthusian socio-economical process of network-generated clusters of innovations that strongly characterizes economic growth during the 1st IR. As we will see, in the British society, collective invention was based on non-institutionalized and thus nonformalized diffusion, contagion and adaptation mechanisms for technical and technological innovations, amongst industrial sectors in a weekly-connected industrial social community, mostly composed of manual workers, inventors and entrepreneurs that were not scientists. We acknowledge that this representation of the IR, based on innovation/imitation clusters, will probably not be shared by everyone. Moreover, if analyzing the IR from a micro-economic perspective, many of our arguments and reasoning would probably lose much of their relevance, which emerges only when adopting an organicistic (systemistic) approach, this approach to economic development wishes to be the specificity of this paper, and will thus also be its limit. Keywords: Technology, progress, clusters, innovation, growth, industrial revolution, welfare, knowledge diffusion, productivity, mechanization, applied science, networks, invention, investment, R&D;

INTRODUCTION
At all times in History economic development has drawn its major impetus from non-economic happenings and transformations within society. However, change, even when socially beneficial, is resisted by social groups that stand to lose economic rents or political power. Consequently, the process change involves significant conflict between different groups (Acemoglu D. et al., 2005). Between the Renaissance and the Enlightenment Europe lived a climate of cultural re-evolution. Through collective questioning and uprising, people progressively replaced most of the ideological ballast used to protect old privileges and hereditary positions of exploitation, that were previously passed off as tradition, culture or religious dogmas. Pre-industrial dominant aristocratic class had bound the majority of people to poverty and ignorance, and hampered economic growth by discouraging or restraining middle and lower classes access to erudition, private venture, property ownership and free enterprise.

During the seventeenth and eighteenth century, all around Europe, emerging middle class became a threat to the maintenance of the political and military power of lords. In GB, thanks to the middle classs entrepreneurial awareness there was a fertile ground for novelties. Innovations could rapidly spread within a wide and proactive community of craftsmen, industrialists and merchants in search of success, who had little to do with our modern and professional scientists (e.g. the first British professional society of mechanical engineers was formed in only in 1847). As we will see, mechanic inventions enabled a deep social and technological transformation, supporting progress and growth; redefining power and richness equilibriums within society. Emerging power and richness equilibriums relied on new dominant ideologies, first mercantilism and then capitalism, which through their legal and institutional formalization redefined rights and obligations upon resources. New rights and obligations influenced the structure of relative prices of factors of production. Consequently, through laws and institutions a new series of economic incentives for production factors substitution were generated. For example, as we will explain in detail later on, in textile manufacture, the new structure of incentives for factors substitution (labor substituted with capital and energy) had a particular significance for the gradual mechanization of the British industry. Relative costs for the exploitation of productive resources are thus the key to understand the implementation of new ways of organizing production, i.e. the technology. Therefore, we will try to determine why and how new technologies, new products and new ways of preparing individuals for work, find their reason dtre in the newly defined societies values that through their institutional formalization generate a new structure of prices and incentives, which determines the forthcoming role occupied by the differently professionalized categories of individuals within society, as well as the capital and labor intensity in British industries between the eighteenth and nineteenth century. From the fall of the Roman Empire until the first IR, European Countries were scientifically backlog in respect to Asian and Arabian empires (Rich E. E., Wilson C. H., 1977). Thus, the capacity to military and economically compete with those foreign powers resided in the ability of making the greatest gain from the adoption, unconventional application and micro-improvement of foreign knowledge and technology, acquired through trade-driven or war-driven interactions with more advanced extra-European countries, like the Middle-East and North African Caliphates during the Islamic Golden Age (750-1258 CE), and the Chinese Empire during the middle ages and renaissance (i.e. European used the Chinese inventions of gunpowder, paper and printing, and the magnetic compass in ways undreamed of by the Chinese themselves; Bin Wong R., 2004). Yet, between the 18th and the 19th century GB recovered and modernized, economically and technologically, bypassing eastern powers. The emerging British society was progressively shifting towards its modern economic and social organization model, the capitalistic one. The latter, as we will make evident, had: Increasingly mechanized productive structures: thus less labor intensive and more capital intensive; Increasingly standardized productive processes: thus less apprenticeship dependent; Increasingly diffused education and welfare systems: thus less discriminatory and tacit knowledge dependent; Increasingly wide and specialized middle class laborers: capable of generating microimprovements in productive processes, accrual innovations and inventions, and perform more complex procedures at work and more lucid investments and outgoings within the household;

However, the IR in GB was not an autopoietic economic phenomenon, as Ashton T. S. (1997) fittingly states "changes were not merely 'industrial', but also social and intellectual. The word 'revolution'

implies a suddenness of change that is not, in fact, characteristic of economic processes. The system of human relationships that is sometimes called capitalism had its origins long before 1760, and attained its full development long after 1830: there is danger of overlooking the essential fact of continuity. We will therefore investigate about the abovementioned enabling factors of capitalism, the irregular but increasingly frequent technological progresses and consequent variability of the technological environment of production. In the first part, we will explain how during the IR, useful knowledge and technical experience was developed in urban and industrial milieus and then transmitted by means of ideas transmission, between workers and members of the industrial business community. Furthermore, we will explain how during the 18th and 19th century the scientific method and new market institutions contributed to British creativeness and inventiveness. In the second part, we analyze the role of incentives for factor substitution and entrepreneurship in the innovation and industrialization process; giving particular attention to the role of high wages and cheap coal in the mechanization of the British economy. Furthermore, we explain why Acemoglu D. et al. (2005) as others, affirm that during the IR the differential growth of Western Europe is accounted for largely by the growth of Atlantic trade, trying to discern why Atlantic Trade and Colonialism are the cause, and not only the consequence, of the British industrialization process. In the third part, we describe the mechanisms of diffusion, improvement and imitation of innovations during the IR. Subsequently, we explain why in connected constellations of small businesses and industries, CoIs and collective inventions are self-enforcing and self-expanding. Subsequently, we identify some important CoIs and collective inventions of the British IR, and recognize interrelations and reciprocities between them. In the fourth and final part we clarify how CoIs, collective inventions and the mechanization of production processes determined the growth of productivity per worker, markets, foreign trade and least but not last welfare within GB.

DEVELOPMENT
As observed by Von Tunzelmann G. N. (1997), the peculiarity of an industrial revolution is that technological change permeates all functions undertaken by firms and by the economies that contain them. The very complexity that emerges defies any straightforward application of covering laws or general principles of economic development In the British case, the contribution of explicit scientific findings to technology was minimal: what instead the scientific revolution provided was the experimental method, i.e. a procedure for logical investigation, together with some of the instruments that allowed such analysis. The major scientific advances that carried direct implications for technology, like the discoveries of the laws of thermodynamics, were more likely to be the result of technology than the cause. Accordingly, during the British IR, the link between useful knowledge (science) and technology was bidirectional and the process of innovation was more erratic, looping and complex than as described in the classical models of innovation (e.g. Linear Model of Innovation).

Figure 1: Linear Model of Innovation

Useful knowledge (basic reserch)

Invention (applied research)

Innovation (technology development)

Production and Diffusion

Source: Godin B. (2006) To understand the industrial transformation that occurred during the eighteenth and nineteenth century in GB, it is necessary to identify underlying mechanisms of selection and contagion in all the different phases towards the diffusion of a new technology. At the epoch of the first IR, selection and contagion of ideas between industries and between inventors led to massive improvements of productive processes in main industries of GBs economy: Textile, Coal Mining, Steel and Iron, Railway, Steam Power; disseminating new mechanized equipment for transport and production. In the Figure 2, we have identified and summarized the compound path from the invention to the adoption and diffusion of a technology. We can consider the following scheme a revision of the Linear Model of Innovation with some important differences to fit the peculiar situation of Britain during the first IR. Figure 2: The road to the improvement of a productive process during the British IR

1. Sources of Invention
Intellectual fertility and creativeness - Entrepreneurial culture -Public promotion and funding of inventions -Stability of the political environment -Literacy and numeracy - Attitudes and morals that legitimize and support enrichment, progress and economic growth. -Faith in industrial progress -Technical know-how and useful knowledge diffusion - Problem solving aptitude

2. Opportunities for innovation

Fit to business environment and development prospects -Incentives for early adoption of innovations - Ease in upgrading industrial plants -Capital and labor disposal -Natural resources constraints -Risk propensity

3. Circulation and improvement of technology

Diffusion of technology -Business networks -Industrial clusters of innovation: COIs -Cross industry synergies and spin-offs Micro-improvements and heuristic advances -Incremental microimprovements -Exploration and testing of promising refinements Imitation and reuse -Unconventional use of pre-existing technology - Imitation and adaptation of solutions

4. Response and support of the environment to industrialization

Urbanization - Agrarian Revolution -Land and sea transport improvement -Demographic growth Market expansion - Economies of specialization/scope -Industrial concentration/clustering Wealth growth -Rising wages of unskilled workers - Rising consumption of industrial goods

International trade opportunities -Foreign markets openness -Transportation costs

Source: of my production

1)

Sources of invention

Social environment can stimulate or inhibit mens creativity in innumerable ways, thus we will resume in this first part the main happenings and features within British industrial society that could have widely stimulated or inhibited creativity. As previously anticipated, the cultural advancement of the Renaissance and the Enlightenment created new attitudes (e.g. systematic doubt, humanism, positivism and anti-clericalism) and methodologies (e.g. the scientific method). Figure 3: The scientific method applied to industrial innovation

Observation of production processes

Identification of a problem or inefficiency

Investigation for solutions

invention and technical formulation of a solution

Modelling and testing

Adjustment and refinement

Source: of my production During the IR, countless individuals developed a passion for the systematic classification of natural elements and phenomena. This cultural attitude facilitated the educational transition from cabinets of curiosities to organized collections of useful knowledge. Mens ability to extract useful knowledge from experience depends on available intellectual tools and methodology, both improved in Britain during the IR. Moreover, organized and structured proceedings used for scientific research could be profitably applied to technical innovation, i.e. for the design and construction of industrial machines. Additionally, in GB the scientific method was much diffused in nonscientific contexts, this amplified exponentially the inventiveness of the British society. As a result, only a small number of ideas that determined concrete improvements of production processes came from science and scientists. But if not from scientists and academics, where did industrial ideas and inventions come from? Most of the ideas that jointly determined the IR came from self-taught or home-taught people with little scientific background. Many inventors were manually valuable craftsmen; mainly tinkers, carpenters and mechanics with outstanding creativity and problem-solving talent (e.g. James Hargreaves inventor of the spinning jenny). But in the long list of inventors that contributed to the IR we also have clerics (e.g. Edmund Cartwright inventor of the power loom), artists (e.g. Samuel Morse inventor of the telegraph), barbers (e.g. Richard Arkwright inventor of the water frame) and other unschooled professionals. This occurred because, at least until 1850, most of the invention and innovation activity (in modern terms R&D) was not so theoretical knowledge intensive as it is now. During the IR, invention and innovation activity required good logic, basic understanding of mechanical and physical principles, tools and gears, and extremely long time to shape and assembly mechanical components in an effective and original way. Ready reckoners, who became more diffuse and cheap thanks to the progressive diffusion and improvement of printing machines from the sixteenth century on, helped those amateur inventors in using most recent applicable knowledge about mechanics, physics and mathematics. Invention was an exploratory process with an uncertain or unknown outcome; therefore British inventors were certainly risk seekers, namely entrepreneurs. Many of them were after-work inventors; they used their leisure time to seek for new solution or improvements for manufacturing activities, indeed they did it for passion, probably with the hope of becoming rich, which seldomly happened to inventors during the IR; although, many of them became famous and are still remembered for their inventions.

Another important element of the British IR to considerate, is that political institutions placing limits and constraints on State power are essential for the incentives to undertake investments and for sustained economic growth; In early modern Europe (especially GB), such political institutions were favored by commercial interests outside the royal circle, but were not welcome by the monarchy and its allies; Institutions favored by economically and politically powerful groups are more likely to prevail (Acemoglu D. and all., 2005). Therefore, the Glorious Revolution was a clash over the rights and prerogatives of Lords. Business and trade interests sided with those demanding restrictions on the power of the King and its court. After the Glorious Revolution, the British governance apparatuses had to enforce a new social contract between Lords (gentry) and Commons (plebeians) as determined in by the Bill of Rights on 16 December 1689. The protection and enforcement of property rights and contracts (e.g. The Statute of Monopolies of 1624, protected also inventors intellectual property right), through impartial courts (e.g. According to the Act of Settlement of 1701, judges' commands were considered valid only if resulting from good and fair behavior: quamdiu se bene gesserint) are certainly central organizational factors for reducing transaction costs and promoting trade, progress and economic growth. Despite the fruitful cultural and institutional climate, that helped Britain becoming one of the most inventive countries of Europe, life during the IR wasnt a bed of roses, the early 1800s were a period of substantial upheaval for the British economy. The country was fighting a long and expensive series of wars with France that drained resources and disrupted trade. In addition, there were several years of devastating crop failures in the early 1800s. (Stokey N. L., 2001). We should thus ask ourselves how GB managed to have an Industrial Revolution in such a difficult time. It may seem strange but the abovementioned adverse events, gave to Britain the opportunity to accelerate the industrialization process in the following way: Crop failures and war mobilization obliged Britain to import more food and raw materials from foreign countries and colonies. To buy them, Britain increased its production and exports of manufactured goods, mainly textiles that were lightweight and could be transported abroad with little transport costs per unit. The loss of food self-sufficiency, turned out to be an incentive for industrializing. To improve its cost efficiency and volumes of production Britain further mechanized, in the textile industry steam engines progressively replaced water wheels, and exports became more competitive and vital than ever. Naval warfare in the late eighteenth and early nineteenth century, gave to Britain additional motives to further improve navigation and ship building technologies, to protect sea trade, coastal industrial areas and ports. Shipbuilding improvements determined many collateral benefits for the British trade. For example, copper sheathing allowed the navy to stay at sea for much longer without the need for cleaning and repairs to the underwater hull; this innovation revealed to be profitable even when implemented to merchant vessels, because the initial outlay was more than compensated in the long run by lower costs for maintenance and insurance.

As end result, its an ill wind that blows no good: The British industrial golden age is also the outcome of a series of timely coincidences.

2)

Opportunities for innovation

According to the Lockean philosophy, innovation is the intellectual component of modern production, the human capital intensive phase of industrial manufacture. As prerequisite and primary part of the production process, technology follows innovation trajectories that are determined or at least biased by the surrounding economic environment. In GB, main factors that influenced the process of technological development and innovation in industry during the 18th and 19th century are: Natural resources endowments and prices: In the 17th century, forests in GB were rapidly shrinking due to an intensive exploitation of timber that was used both for heating and construction. Demographic growth and urbanization required the erection of new buildings and housing, the Great fire of London (1666) further worsen the situation, wood was in short supply. Luckily, GB had enormous and easily reachable reserves of coal that could be mined, and used to substitute charcoal for heating. Subsequently, in the 18th century coal extraction started rising. In the 19th century, innovations in mining, refining and smelting made coal a much cheaper energy source than charcoal. Moreover, Britain imported growing volumes of food and raw materials both from its colonies and from trade partners (e.g. cotton used in the textile industry was massively imported to Britain first from America and then from India). Figure 4.1: Raw materials and food net imports and consumption (in ) 1700-9 Net Food Imports per person Net Raw Material Imports per person 0.43 -0.25 1860-9 3.77 3.14 15.5

Total Food, Energy and Raw Material 12.7 consumption per person (in ) ) Source: data from Clark G. (2001) Figure 4.2: Raw materials, energy and food prices
250 200 150 100 50 0

Farm goods Coal Light Housing Iron

1600 1610 1620 1630 1640 1650 1660 1670 1680 1690 1700 1710 1720 1730 1740 1750 1760 1770 1780 1790 1800 1810 1820 1830 1840 1850 1860

(base year 1860 =100)

Source: data from Clark G. (2001) Labour wages: Britain was a high-wage economy in four senses. Firstly, at the exchange rate, British wages were higher than those of its competitors. Secondly, high silver wages translated into higher living standards than elsewhere. Thirdly, British wages were high relative to capital prices. Fourthly, wages in northern and western Britain were exceptionally high relative to energy prices (Allen R. C., 2011).

The momentum of the technological heuristics: intended as the set of paradigms used in a determined field to solve the most significant problems recently encountered. Machinery is regarded here as a paradigm in the sense that, when a problem ("puzzle") arose in manufacturing, the solution first turned to was likely to be one of developing a machine to overcome the difficulty. Indeed, in sectors other than manufacturing, other paradigms continued to predominate. In British agriculture, biological and chemical solutions were more likely to succeed, and machinery was uncommon in the British countryside until a century later (Von Tunzelmann G. N., 1997), the 20th century.

Therefore, Britains unique structure of relative prices was mainly due to two reasons: The first was Britains commercial success in the global economy, which was in part the result of state trade policy and colonialism. The second was geographicalBritain had vast and readily worked coal deposits (Allen R. C., 2011); the two, jointly determined strong incentives for the development of labor-saving, energy intensive technology. At the epoch, the innovation paradigm was inventing new machines and mechanisms powered by water or coal to save labor and reduce the time of manufacture processes. Potential benefits of innovations could be tested through small scale engineering models. This modeling technique was massively adopted in the nineteenth century to reduce the costs for the development of new machines and mechanical components; first small scale prototypes were developed and refined, when suitable and fully operational, prototypes were rebuilt in real scale and implemented to production plants. Costs for the development of new equipment were initially incurred by inventors and/or entrepreneurs in the hope of future gain. Paying these initial costs gave rise to the problem of the private financing of innovation: As scientific method made innovation more effective, economic data and mathematical laws made projections of innovation investment returns more precise and foreseeable by investors, which gradually became more confident in financing R&D. Isaac Newtons present value tables could be used to calculate the real value of forthcoming estimated profits, deriving from investments in innovation. Moreover, discounted cash flow analysis, which was first adopted in the Tyne coal industry around 1801, proofs the progress of both accounting and financial systems in GB during the IR. All calculations for investment decisions shared a common core, which was the assessment of the annual profits over the lifetime of the lease together with the residual values of plant and materials at the end of the term, all of which, were discounted at interest rates to reflect the viewers assessment of risk (Brackenborough S. and all., 2001). Accordingly, expected returns of an investment in innovation were calculated using data on the sector/industry concerned by the innovation to forecasts differential returns deriving from the implementation of a new technique, process or machine. Industrial secrecy and patents were respectively used to try to safeguard and capture forthcoming benefits. For the first time in History, private investment in innovation provided a market link between, profit rate, interest rate, product prices and technology. However, this market mechanism wasnt always effective, and the reason was simple: If patents didnt describe detailed techniques, processes and machines, but only general principles or ideas that could be used to infer several detailed technical solutions to a concrete problem; then, once an invention was patented other inventors couldnt use the same principles to developed similar but not identical technical solution, without being legally liable for copying, for this reason Newcomen was forced to go into partnership with Savery, whose patent covered all engines that raised water by fire. Consequently, relevant ideas and innovations that could be technically implemented in innumerable ways were sometimes restricted by previous patents. But, even if patents could slow down diffusion, they nevertheless favored technological variation, by stimulating the development and emergence of alternative and differentiated techniques and technologies for the same use, bypassing in such a way pre-existing patents.

The rapid growth of the British manufacturing industry was made possible by maritime trade, colonialism and (indirectly) slavery. According to Bowles P. (1986), there were three changes that occurred at the turn of the seventeenth century which led to a rise in the strength of Britain as a trading nation at the expense of those states that had made the initial advances. First, the invention of the mariner's compass enabled trade to be carried on over longer distances. Second, the discovery of America, and the opening of a passage to the East Indies by the Cape of Good Hope were of major significance. These discoveries presented a set of new and magnificent objects of commerce, and the prospect of trading with nations in various climates, producing a proportional variety of commodities, provided a great stimulus to trade. Britain was ideally placed, geographically, to exploit these new opportunities. On the same subject, Acemoglu D. and all. (2005) recognize meaningful causal relations between trade expansion institutional change and economic growth in GB: from 1600, onward, in countries with non-absolutist initial institutions and easy access to the Atlantic, the rise in trade enriched and strengthened commercial interests outside the royal circle and enabled them to demand and obtain the institutional changes necessary for economic growth. British trade certainly played a crucial role in the IR, it fostered the reallocation of power and wealth in GB, land owners suffered the competition of foreign imports of food and raw materials, while industrialists and merchants could take advantage from low cost foreign raw materials and wider markets to export high value-added British manufactured goods. One peculiarity of the British IR is that many business actors of the emerging industries were both inventors and entrepreneurs within their corporate (see figure 5), this peculiar guiding position of inventors allowed firms to be projected towards a production process based competition, cost-efficiency was of primary importance. Product differentiation and marketing levers were secondary in respect to the production technology levers of competitiveness. The ideal entrepreneur-inventor of the British IR was someone who was able to constantly run its activity at the technology frontier, by perpetually introducing micro-improvements on his machinery and equipment, by promptly imitating the finest innovations of leading competitors and rapidly reorganizing the production processes when major technology advances where made. Figure 5: Summary and taxonomy of the forces and agents at work in Innovation processes

SCIENCE AND TECHNOLOGY I N S T I T U T I O N S

P R O C E S S

TECHNIQUES

PRODUCTS

F A C T O R S

F I N A N C E

TASTES

Source: Personal revision of fig.1 in Von Tunzelmann G. N. (1997)

3)

Adoption, diffusion and improvement of technology

In the early 19th century, the British industrial structure consisted of geographically agglomerated groups of small locally owned firms, making uncoordinated -but symbiotic- production and local investment decisions. Internal to cluster business to business trade was based on trust and long term relationships. Minimum efficient production scale (MES) were still relatively small, this prevented the rise of large vertically and horizontally integrated firms in most of the geographical districts in Britain. One of the distinguishing features of the British business structure was local labor market, which was often internal to the district and highly flexible. Individuals easily moved from firm to firm, and growing businesses attracted and absorbed redundant workers from businesses in crisis or bankrupt; workers were accordingly more committed to their district rather than to their firm, so that labor inter-district migration was limited. Districts were subsequently relatively stable communities, in which owners as well as workers lived together, this enabled the evolution of strong local cultural identity and shared industrial expertise. Before describing in detail the features of technological progress, clusters of innovations (COIs) and accrual micro-improvements during the British IR, we need to define the very concept of technology; to do so two aspects of technology ought to be differentiated: The scope of technology: technologies are systematized collections of procedures and knowledge, necessary to overtake or solve technical problems and reach desired outcomes in an economically suitable way. Accordingly, technology is realized through a process of implementing structured procedures and useful knowledge within an operative organization via humans intervention; it develops in an ordered and coherent collection of software (systems of techniques) and hardware (tools and equipment) needed to perform them, in order to produce a predetermined and desired result once employed. Technology can be itself an end, for instance to develop a new capability within an organization. Besides, if progress becomes a value within a society (as it was in Britain during the IR), upgrading technologies, or using them in an original manner is a way to shape new competitive dimensions, and generate new competitive advantages in markets. The role of technology: technologies are dynamic forces having human mediated impacts on structural properties of organizations; such as the competitive approach and strategy, the decision-making processes, the capital and labor intensity of processes, the capacity and saturation of assets, the division of labor, tasks, resources and responsibilities; those impacts are moderated by human actors and codetermined by preliminary organizational structure and environment.

The range of hardware [equipment, machines, and instruments that humans use in productive activities, whether industrial or informational devices] in sectors and industries has led to multiple, context-specific definitions of technology, which have inhibited comparisons across studies and settings, technology concept was thus extended to "social technologies" [software], thereby including the generic tasks, techniques, and knowledge utilized when humans engage in any productive activities" (Orlikowski W. J., 1992); in Britain the hardware renovation, mostly due to the mechanization of production processes, was combined to the improvement of the software, or organization and techniques, in key industries and sectors (coal, textile, steel and iron, transportation); those transformations drastically altered the structure of the British economy, engendering a new approach to doing business: 1. Competition and cooperation within districts was based on the ability to employ, retain, transfer and flexibly reposition human-capital and specialized equipment within and between firms;

2. Synergies between sectors and industries acquired great significance; gains in efficiency in one sector (for example: transportation services) could improve the overall cost-efficiency, and thus competitiveness, of the British economy; 3. New mechanic technologies shaped a new set of competitive dimensions; the aptitude to rapidly evaluate and choose between alternative technologies and investments to be done (that determined the intensity of inputs use in production processes) became the key to success. If mechanization has first occurred in Britain, it must be that during the IR new mechanic technologies were both capital-intensive and capital-biased (a technology is said absolutely biased toward a factor if it increases its marginal product) to fit the particular price structure of productive factors in Britain (see part 2); i.e. those technologies augmented the marginal productivity of capital goods (MP(C)), more than they augmented the marginal productivity of non-qualified labor (MP(L)). Moreover, since the new technologies were more capital intensive than the old ones, the difference between the growth rates of the marginal productivity of capital and labor had to be enough to compensate capital productivity fall due to the use of more capital intensive technologies, which augmented the overall capital/labor ratio of the British industry (with the neoclassical assumption of decreasing marginal productivity of factors: if C augments, given a constant value of L, MP(C) should decrease). The fundamental machine building technologies (assemblage techniques, components and tools) used by inventors to mechanize and improve productive processes during the IR were first invented, studied and miniaturized in the clock and watch making industries; probably without the progress of this millenarian technical expertise, industrialization wouldn't have ever occurred. Since during the IR most of the technical and technological improvements in production processes came from analogical thinking, namely finding solutions to new problems adapting old solutions, methods, components and techniques, used by other inventors facing similar problems, clock making mechanic technology offered many hints to improve productive processes of other industries through the automation of productive processes. Trough imitation, exchange or acquirement, transfers of technology between firms and industries was an extremely powerful instrument for productivity growth; accordingly, the rapid circulation of new technologies could engender several cycles of innovations from innovations, namely clusters of innovations that spread new ideas across the whole British industrial society. This phenomenon was amplified by the gradual codification and transcription of technical knowledge in businesses. The main linkage between most diverse mechanical devices invented during the first IR was the minimalism of the technology required for their assemblage and the flexibility of their mechanical components: levers, pulleys, gears, (gears) trains, pistons, turbines, rails, cam and followers, wheals and axles could be adjusted and assembled to fit most dissimilar uses; likewise, mechanic devices functioning principles could be easily imitated and exported from one sector to another. Furthermore, watch-making technology, that became widespread in Europe from the fifteenth century on, was also very important because it allowed Europeans to conceive time in a new manner that facilitated new kinds of economic practices. These activities further demonstrated and developed the fine motor skills and precision instrument making that Europeans put to great effect in a broader array of technical tasks. The inability of others to develop clock and watch making skills was symptomatic of their limited abilities to undertake technological changes needed for economic development (Bin Wong R., 2004). Four major British businesses experienced significant benefices from the accrual technological improvements during the IR:

Textile manufacture; Coal Mining; Steam and Iron production; Railroad and steam engine industry;

Textile manufacture was certainly the most important British industry during the IR, both for value of the outcome and for exporting volumes of the business; Clark G. (2001) goes so far as to suggest that productivity growth rates of the Industrial Revolution owed mostly to productivity gains in textile manufacture. Until the mid-nineteenth century very little mechanization had taken place [in the textile industry], and an industrial plant of any type had a very low power requirement, usually no more than 5-7 horsepower. The main sources of power were water wheels, windmills, horses and man (or woman) power, with the water wheel being by far the most important. The undershot wheel was simple, robust, and cheap to construct. But by the late 1700s overcrowding was a severe problem, at least on favorable streams in desirable areas, and the potential for further increases in power was limited. This situation began to change in 1771, when Arkwright built the first cotton mill with mechanized spinning. Many of the cotton mills built in the 1770s, 80s and 90s followed Arkwrights design closely, and they typically used either 10 or 20 horsepower. Although earlier devices were employed in coal mining, the use of the steam engine in textile manufacturing came with James Watt. By 1850 the steam engine had displaced the waterwheel as the most important source of power. A total of 500,000 horsepower in steam engines were installed in Britain. The textile industry alone employed 133,000 horsepower, of which 81% came from steam. (Stokey N. L., 2001). The introduction of coke smelting of iron ore by Abraham Darby in 1709 freed the [British] iron industry from its dependence on charcoal derived from increasingly scarce and expensive timber (Cameron R., 1985). From the mid-eighteenth to the mid-nineteenth century, the growing demand of foreign markets (continental Europe, North America and eastern Asia) for British manufactured goods stimulated a continuous expansion of the capacities and volumes of production in the British industry. To supply to this growing demand for manufactured goods, the British industry incessantly needed to increase the scale of its production and resource provision facilities. New high capacity mechanized production equipment, and transportation services for raw materials (coal, iron, wool and cotton) were needed. Moreover, the demand for coal and iron increased so rapidly from the 17th century on, that, to satisfy emerging needs, new technologies and techniques for mine pumping, heating and smelting had to be conceived and new designs for furnaces, flues, and chimneys were required, (for details see: Allen R. C., 1983). New skills were also necessary to stoke and control coal fires. Accordingly, during the IR iron industry became increasingly dependent on coal mining and new synergies between the two emerged: coal was needed for smelting iron ores, and iron was needed to build steam engines to pump out water from coal mines and build railways to carry the coal to towns and industries. Efficiency gains due to a technological or technical advancement in one sector engendered direct benefices also for the other. In 1800, Britain mined 90% of the coal in Europe and produced more than 50% of the worlds iron manufacture. Since the early nineteenth century, a new specialized machine-building sector progressively developed within the Lancashire textile industry. These machinery firms, some of which were exporting at least 50 percent of their production as early as 184570, had an important role in exporting textile technology. These capital goods firms were able to provide a complete package of services to prospective foreign entrants to the textile industry, which included technical information, machinery, construction expertise, and managers and skilled operatives (Clark G., Feenstra R. C., 2003). In the late nineteenth century there were three leading districts in which the textile business was carried: 1. The South district of Canterbury, Sandwich, Southampton and Maidstone;

2. The West district from Cirencester in the north to Sherborne in the south, and from Witney in the east to Bristol in the west; 3. The North district of Greater Manchester Counties and Lancashire; Textile districts were vast constellations of small firms; and because of the intense competition firms had very small profit margins. Within those business clusters, major industrial innovations, like the steam engine -that was first used in textile districts to recycle water used by mills by pumping it back to the top of a stream- required long time and capital to be refined and become technologies profitable to be implement in production processes, especially in small production plants of vertically and horizontally fragmented industries such as textile. Furthermore, even the most cost-efficient innovations were rarely rewarding for their inventors because often patents proved to be difficult to enforce: Boulton and Watt formed their partnership in 1775, to exploit Watts patent on the separate condenser, and over the next 25 years (the patent was extended) they built on the order of 450-500 engines. Competing firms built steam engines with other designs, as well as pirate engines that infringed on Watts patent, Boulton and Watt had only a little over a quarter of the market during the life of Watts patent (Stokey N. L., 2001). Due to the small volumes of production per firm, investments in new equipment could need several decades to be amortized. Subsequently, small textile firms often didnt have the money to buy patented mechanical equipment from technologically leading competitors or other external suppliers. Furthermore, with one generation backwardness, newcomers could use state to the art technologies without adapting repeatedly to the continuous microimprovements of production processes and machinery. However, firms that did not exploit more cost efficient and labor-saving technological solutions were regularly knocked out of market by the ones who were able to rapidly imitate best practices. To survive this competitive clash, many textile districts firms started adopting a new attitude: they rapidly and continuously micro-upgraded their plants; and no more simply imitated others most cost efficient innovations and micro-improvements but they tried straightway to improve them internally; generating in such a way new cost-efficiency gaps between firms. Gains in competitiveness could be used to put out of market competitors -by lowering prices- or to ensure higher profit margins. By recurring to differential imitations jointly to endless micro-improvements, textile firms that operated in districts became increasingly good and rapid in innovating by imitating, and then refining eachothers advances. Accordingly, differential and accrual imitations and micro improvements were happening on a daily basis, as a result especially in the textile industry many inventors died in poverty because plagiarized (e.g. John Wyatt and Lewis Paul inventors of the spinning machine). Collective invention turned out to be the golden solution to the abovementioned problem of market failure due to the rapid and irrepressible phenomenon of imitation of the innovations within business clusters in key sectors of the British economy: I) II) When new capacity was built, the investing firm could vary the design to improve the best practice. If the variation cut costs the next investing firm could extend the change and try to further improve the best practice, and so on.

Since the cost of each experiment depended of the probability that the new design would reveal to be inferior to best practice, by making small variations, the costs per firm were kept low. Moreover, the higher was the number of firms participating to this technology exchange process the higher revealed to be the pace and efficiency of the innovation process (the collective invention taken into consideration).

Accordingly, more and more firms started grouping in specialized clusters and sharing the design information of production processes either from necessity or agreement (for an iron industry cluster case see: Allen R. C., 1983; for a mining district case see: Nuvolari A., 2004). Finally, what appeared to be the imitation problem became the strength of a new form of inter-firm R&D organization that rapidly diffused in Britain during the 19th century, which produced a technology adapted to the conditions and factor prices of its environment. Collective invention/R&D was probably the major cultural advance of GB in the 19th century.

4)

Response and support of the environment to industrialization

The Agricultural Revolution that took place in GB between 13th and the 19th century was certainly a fundamental supporting factor for the British IR: Selective breeding, rotation of cultures and the introduction of new crops and fertilizers greatly improved the natural productivity (mass of food per square acre) of British lands. These advancements in agriculture allowed, from the 14th century on, the population of a full world - that is, 30 to 40 inhabitants per square kilometer (Leon P., 1978). Furthermore, in the 17th, 18th and 19th century GB was experiencing a rapid demographic growth, which, by driving up land rentals and creating urbanization, spurred a number of changes in the economy, such as the enclosure of common lands, improvements in transportation, the expansion of coal mining, and perhaps also the fall in interest rates in the eighteenth century (Clark G., 2001). Labor was released from agriculture, or, as Wrigley E. A. (2006) more precisely says: numbers on the land remained broadly static, so that, with an increasing population, there was a disproportionately rapid rise in non-agricultural employment. The [British] economy as a whole was sufficiently resilient to absorb into secondary and tertiary employment those no longer working on the land. As we can see from Fig. 6, in GB during the IR the wage ratios (craftsmen wage/laborer wage) were always higher in the countryside (farm) than in city areas (urban); moreover the difference between the two constantly grew for almost three centuries. The data demonstrates two things: 1) The skill/education premium was higher in the countryside than in cities; and this gap was accentuated by industrialization and urbanization; this because skilled workers (craftsmen) progressively became more and more scarce, relatively to unskilled (laborers), in the countryside in respect to cities, where training and education facilities became increasingly abundant and easily accessible; accordingly, in industrial areas qualified workers were more easily substitutable. 2) The laborer wage -that is inversely proportional to the wage ratios on the graph- was higher in cities (urban) than in the countryside (farm). During whole IR this gap constantly and continuously grew. Therefore the incentive for unqualified workers to move from the countryside to cities lasted the entire period taken into account and was accentuated by industrialization. Figure 6: Urban and rural wages in Britain during the first IR
2,40 2,20 2,00 1,80 1,60 1,40 1,20 1,00 1600 1610 1620 1630 1640 1650 1660 1670 1680 1690 1700 1710 1720 1730 1740 1750 1760 1770

Craftsman Wage/ Urb.Laborer Wage Craftsman Wage/ Farm.Laborer Wage 1780 1790 1800 1810 1820 1830 1840 1850 1860

Source: data from G. (2001) rivers/canals and coal/mineral Manufacturing cities and villages with access to the sea, Clark near navigable deposits grew very rapidly during the IR; firms in such places had a competitive advantage from the point of view of the transportation costs of inputs (from suppliers to the firms manufacturing facility)

and outputs (from the firms manufacturing facility to clients/markets). Since transportation costs deeply affected the profitability of businesses and the ease to access markets (both domestic and foreign) geographical business concentration, in specialized sectorial clusters, was the natural positioning solution to minimize the transportation costs for Business to Business trades. In the 18th and 19th century most of the British freight of goods and raw materials was still done by water transportation, using ships propelled by sails and/or steam-engines. In the inland, transport boats and rafts travelled along canals and rivers, these boats were steam-powered or horse-draw: A towpath alongside the canal [was made] for the horse to walk along. This horse-drawn system proved to be highly economical and became standard across the British canal network (from Wikipedia: History of the British canal system). Only in the late 19th century railways started substituting inland canal systems, until then railways were used to connect locations where canal digging or stream canalization was impracticable or too costly. Throughout the 19th century four major innovations further lowered the costs of transportation: Screw propeller: this new method of propulsion allowed steam ships to travel at a much greater speed without using sails thereby making ocean travel faster; Iron hulls: iron-hulled boats were 40% lighter and gave 15% more cargo capacity for a given amount of steam power; Compound engines: were much more fuel efficient and had a more uniform turning momentum; they were implemented in sea and earth transportation; Surface condensers: allowed steamboats to avoid the use seawater to make steam, which produced corrosion and fouling of the engine.

As Clark G. and Feenstra R. C. (2003) observed these innovations greatly reduced the coal consumption of engines per horsepower per hour. In the 1830s it took 4 kg of coal to produce 1 hphour, but by 1881 the quantity was down to 0.8 kg. As a result, given the almost stable real costs of coal, between 1830 and 1880 (see Fig. 4.2) ocean freight and land transportation costs fell by 80% (0.8 kg is 1/5 of 4 kg), which is equivalent to an average annual fall of transport costs of 1,2%. By lowering the costs of transportation, imported food and raw materials became cheaper; besides, British firms could more easily export their manufactured products to overseas markets. As a result foreign demand for British manufactured goods rapidly grew during the IR, giving way to a long-lasting period of industrial and economic growth (for details see: Komlos J., 2003). As Britain industrialized, the share of work earnings on GDP -that mainly depended on the difference between the growth rates in the productivity of labour respect to the productivity of land and capital investments- constantly increased (see Fig.7); accordingly, workers employed in manufacturing activities were better remunerated, and became increasingly rich and wealthy, their living conditions improved rapidly and they received a significant part of the overall economic benefits due to industrialization and urbanization, at least until the late 19th century. Figure 7: Welfare and distribution of income in Britain during the first IR
70% 60% 50% 40% 30% 20% Work Earnings/ GDP Property Earnings/ GDP

Source: data from Clark G. (2001)

As the British GDP per person increased, also the share of workers income dedicated to the consumption of durables and luxuries/cultural goods and services augmented, making people living standards and quality of life higher; in Fig. 8, the increasing over time values of the Human Development Index (estimated by Crafts N. F. R. in 1997) support our thesis of constant progresses in living conditions in GB during the IR. The values of life expectancy, school enrolment, literacy and income gradually improved from the mid-18th to the mid-19th century. To conclude, it must be said that, in addition to the benefices due to the growth in real wages of workers, the provision and improvement of public services (education, transportation, healthcare, social security etc.) codetermined this longlasting growth cycle that GB lived during its first industrial revolution.

Figure 8: A comprehensive Measure of well-being in GB during the IR Year HDI 1760 0.272 1780 0.277 1800 0.302 1820 0.337 1830 0.361 1850 0.407 Source: data from Table 2 in Crafts N. F. R. (1997)

CONCLUSIONS
In this paper we have studied the innovation system and environment, in which the British industrial revolution took place. Of the four main sources of invention that Allen R. C. (1983) identified: (i) (ii) (iii) (iv) Non-profit/Public institutions; Private R&D laboratories; Individual inventors; Collective invention;

We can affirm that collective invention (iv) was certainly the one that tied together the efforts of the British society during the whole IR, by fostering the circulation useful knowledge. As Landes D. S. (1969) illustrates, in this process small anonymous gains were probably more important in the long run than the major inventions that have been remembered in history books. The major strength of collective invention process was thus its cumulative and accrual nature: chained waves of minor innovations were followed by the scientization of new technical solutions (prescriptive knowledge) developed within increasingly specialized business clusters. Since the feedback mechanism between propositional and prescriptive knowledge was bidirectional, the system was autopoietic and thus potentially perpetual. Furthermore, innovations from specialized business clusters certainly sowed the seeds of new ideas in other inventive institutions (i, ii, iii) in which prescriptive knowledge was classified, formalized, generalized and mathematically codified to become more serviceable; subsequently, this new propositional knowledge could be once again selected, exploited and improved in business clusters according to sector-specific requirements and prospects, and so on. In view of this, if the IR was the clustering of macroinventions leading to an acceleration in micro-inventions that Mokyr J. (1993) mentions in his writings, much is probably due to the complementarity between collective invention and other inventive institutions that operated in GB during the 18th and 19th century. We have tried to give an outline of those interconnections, but there is certainly much more to understand, and therefore we hope that future research will clarify the causal links and interdependences between all British inventive institutions (i, ii, iii, iv) during the IR; according to the author, this topic should be studied through cases, since only through empirical approach we can identify common features of the inventive processes that occurred during the IR.

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