Real per capita GNP grew at an annual rate of just 0.2 per cent prior to the Industrial Revolution — from 1700 to 1820. One could easily say that there were no growth-generating innovations and related impulses.

The Industrial Revolution changed this significantly in many ways. For instance, steam power facilitated long-distance transport immensely and also enabled the rapid growth of the textile and iron and steel industries. Prof Adelman also points out that the “primary effect of the industrial revolution was to enable the linking of European and overseas economies in complementary development patterns…”

The period was one of true globalisation: free international trade, and free movement of labour and capital. Globalisation then was also facilitated by the fixed exchange rates under the gold-sterling standard.

Agricultural productivity grew at a relatively rapid rate, higher than the rate of growth of population in Britain, Germany, the US, Canada and Japan. The agricultural sector played a key role in boosting industrial development: providing raw materials, absorbing the products, and supplying labour and capital. Furthermore, in the follower countries, or late-comers to industrial revolution, government investment, government purchases and state funding also played a role in industrial development.

Though the industrial revolution did not bestow immediate benefits on the poorer sections, over time, poverty declined. Thus, starting from the second half of 19th Century, poverty declined significantly in several of the Western European countries.

Steamships changed the tempo and pattern of international trade, especially between the industrialising and developing economies. Agricultural and mineral products from the present day developing countries were exchanged for manufactured goods from Europe and the US, which also supplied capital for investing in resource sectors in developing countries.

Prof Adelman notes that not all developing economies benefited from trade orientation. “Natural resource abundance was a key differentiator among developing countries. In particular, the rate of economic progress in land-scarce, densely populated, low-agricultural-productivity countries (Burma, India, China, Egypt) was slow; mass rural poverty prevented significant development of a domestic market; the forces accelerating exports … had a negative impact on agricultural wages; and faster population growth reduced the amount of land per person.”

According to the economist, institutions played an important role in shaping the growth and progress of the land abundant countries. Embracing modern capitalism and the attendant market institutions, land-rich Australia and Canada joined the ranks of developed nations. Devoid of such institutional development, countries such as Argentina and Brazil remained in the category of developing economies.

Another key factor that helped the progress of some economies was the extent of export expansion. Policies and institutional mechanisms hindering export expansion resulted in slow overall growth, while those fostering exports brought about relatively high growth rates.

The statement, however, has to be moderated since several exceptions speak less eloquently about the benefits of export expansion: “Free trade policies of colonial governments in densely settled Asian countries, such as India, Egypt and Burma, destroyed indigenous industry and contributed to increasing poverty. Developing countries that could not establish a certain degree of protection for their initial industrialisation efforts did not develop even a modest industrial base.”

Two World Wars, the boom of the 1920s and the Great Depression distinguish the period 1913-1950. The Wars and the Depression acted against the earlier movement towards free mobility of goods, capital and people. Average annual growth rates dropped in the OECD countries.

Developing countries did not suffer as much in regard to growth, though inter-country differences were pronounced, and reflected the differential impacts of the Wars and the Depression.

In sharp contrast to 1913-1950, the period 1950-1973 was the ‘golden era of economic development’, characterised by ‘unprecedented sustained economic growth in both developed and developing countries’.

Post-War reconstruction and recovery in Europe and Japan was quick and helped the world economy to move ahead.

Removal of trade barriers in OECD countries helped boost global trade and created the demand for primary commodities supplied by the developing world. Japan joined the ranks of the developed economies, while economies such as South Korea and Taiwan too were racing ahead.

On the flip side, in many developing countries, death rates fell drastically and birth rates had not yet fallen commensurately, leading to explosive population growth rates. Using the labour force as an advantage factor, some of the economies in East Asia have briskly moved from import substitution to export orientation. Other economies had to contend with relatively low growth rates and high levels of poverty.

The breakdown of the Bretton Woods system of fixed exchange rates and the growing adoption of flexible exchange rates, appreciation of the US dollar against most currencies and tripling of oil prices in 1974 — all these had led to lower growth rates in OECD countries. World prices of rice and wheat also tripled during 1973-74.

Several developing countries, impacted by these developments, resorted to relatively heavy external borrowing to maintain the tempo of capital formation and rates of economic growth.

Many focussed on the agricultural sector to counter the price rises and improve productivity via the Green Revolution.

In several of the developing countries of Latin America and Africa, tackling the external debt crisis became the important preoccupation in the early 1980s.

The period 1981-1993 was one of adjustment and policy reform ushering in an era of fewer trade restrictions, reducing the economic role of governments, and strengthening of market institutions. East Asian economies moved ahead with relatively high growth rates. China had begun to emerge as a fast growing economy. And Indian reforms had just been initiated.

What motivated the innovations behind the industrial revolution? Prof Adelman has this to say: “The impetus for the industrial revolution was a sharp increase in the price of timber at the end of the eighteenth century, which necessitated a switch in energy source. Over a period of 40 years, the cluster of inventions required to enable a shift to steam-power was introduced.”

The world has gone quite far since then and we now depend squarely on fossil fuels, with the escalating crude oil price threatening the economic health of many developing economies.

From mixing ethanol and petroleum to harnessing solar energy and wind energy, innovations have been taking place, but none revolutionary enough to replace petroleum to any significant extent to cause a drastic reduction in the crude price. One must hope for breakthroughs in research and another ‘industrial revolution’ to come on steam.

Then there are some hopefully transitory problems such as the fall out of the sub-prime crisis and rising food prices across the world.

Furthermore, there was the fact about the leader nations. During 1700-1820, the Netherlands was the lead country. Great Britain was the lead nation during 1820-90 (the industrial revolution era) and since 1890, the honour belonged to the US.

Until around the time of the East Asian crises of 1997-98, some academics in that region were fond of proclaiming that the 21st Century belonged to East Asia. Now many think it is first China and then India that will call the shots.

Yes, indeed, provided China can remain cohesive when the socialist glue evaporates in the face of unacceptable inter-personal income and wealth inequalities; and if India can remain focused in addressing challenges such as achieving widely shared excellence in education and health, housing, sanitation, and the ever rising transaction costs and corruption.

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