chapter  4
26 Pages

Industrialization in Europe, part 1

During the 19th century the state and other governing bodies in many European countries, both directly and in a more indirect sense, intervened in order to foster the forces of industrialization. Up until then most public money had been spent on armaments, standing armies and navies. However, during the 19th century the proportion spent on civil activities grew steadily, including the encouragement of industry. We need not suppose that governments and public authorities provide finance and intervene in order to strengthen an emerging industrial economy from any general goodwill or altruism. As we have argued, until quite recently economic theory has mainly assumed that the government intervenes in cases of market failure. However this is to underestimate the fact that the state also on many occasions played a very active role to establish and promote industry, or to actively create markets that was not there in the first place. Moreover, market failure does not give enough prominence to the fact that the state and its bodies were independent actors which often had their own agenda – or operated in order to support a special interest. It was thus very common that the government intervened, either to protect its own interests and those of the elites, who dominated government and political life, or on behalf of strong political and/ or social constellations. Such ‘interests’, of course, need not be ‘rational’ or even based on reasonable calculations. Sometimes, the belief of such a shared ‘interest’ is enough to make it a strong motive power. In an economic world where uncertainty reigns it is not always easy to know ex ante what the consequences will be of a certain action. Hence, for example, a high tariff on certain industrial goods can sometimes be regarded to be in the interest of a certain industrial group – while a lower tariff might in fact have been a better solution in the longer run. Moreover, ‘class interest’ – as emphasized by Gareth Stedman Jones and other social historians influenced by the Great linguistic turn – is a highly ambiguous phenomenon and often a contested territory.1 History show numerous examples of when conceited and traditionalistic elites are short-sighted and push for things they later live to regret, or when short-term business interests obviously go against what perhaps have been more profitable in a longer perspective. As modern institutional theory indicates, interest groups are not primordial in the sense that they rise as

‘true’ reflections of economic fact, but are constructed through political process, and are often themselves the very product of (state) policy institutions.2

Moreover, as we have argued, there is room both for unintended consequences of action and path dependence in economic history. In this chapter and the next we will follow the history of the industrial revolution in a number of European countries, its growth and development. We will especially focus on the relation between an active government and industrial dynamics, as it appears in different countries in the 19th century. A last caveat is needed. What we are interested in here is not in the first

place whether the state and/or active governance by other public bodies played a significantly positive role in economic growth or the rapidity of the industrial revolution as such. We are engaged in historical analysis and not in the business of evaluating and identifying ‘best’ or ‘optimal’ solutions. This means that we are more interested in to what extent and why the state intervened in order to bolster the forces of the industrial revolution rather than to evaluate the outcome of such interventionism. Much of the literature which has dealt with the role of (state) governance during the 19th century has instead tried to judge whether the public efforts were optimal or whether private solutions would have been more effective, measured for example in growth of GDP or in the levels of national income. Such attempts often encounter the general problem when writing counter-factual history: can we really be sure what would have happened if another path had been chosen? For example public investments (financed by taxes or tariffs) might perhaps have crowded out private alternatives that would have been more effective.3

Yet we will never know whether money in the hands of private men rather than governments would have been invested more profitably in the same sector, or if it would have been invested somewhere else in the economy with even higher returns. It could also have been wasted away or invested at less profit somewhere else. Everything else would presuppose perfectly effective and transparent markets (a market for lemons) – a condition which seldom appears in history and which, even in the 19th century, cannot be said to have occurred very frequently.