The Three Waves of Industrialization
Between 1750 and 1914, Europe experienced three major waves of industrialization. One peaked in the period between the 1780s and the 1820s; a second crest appeared in the decades between 1840 and 1870; and a third rolled through in the last two decades before the First World War. Each was associated with a particular region and with a particular type of technology.
The process began in Britain, the world’s first industrial economy, accelerated during the second half of the eighteenth century, and was centred upon relatively simple and cheap innovations in two leading sectors, cotton textiles and ironmaking.
This pioneer industrial revolution defined the requirements for its successors: that new sources of power should be applied to production; that manufacturing should increasingly be organized in large-scale units or factories; that there should be structural change within the economy as the share of national wealth contributed by agriculture dropped back and that derived from industry and trade moved into the lead. Clearly, there are other identifying features — such as innovations in process technology and new levels, and types, of investment; but these three requirements are central.
Parts of continental Europe began to emulate the British
Example quite early. France, though beset by an antiquated and fiscally inept state administration, possessed economic capabilities in the private sector which, even around 1780, were not so far behind the British. Her output of coal, ships, and cottons was less than Britain’s, but she turned out more woollens, silks, linens, and even iron. French total industrial output was ahead of the British, but French industrial output per head well behind. This promising attempt at early parity was frustrated by the political upheavals of the French Revolution and the subsequent Revolutionary and Napoleonic wars. These non-economic interruptions cost France some thirty years of industrial growth, decimated French overseas trade, and left the economy stranded in a European market dominated, throughout the i8ios and i8zos, by British manufactured exports. But skills and structures remained, and, even during the war period, there was notable regional development in the French north and east.
Similarly, some areas of the German states — Silesia, Saxony, Rhineland-Westphalia—were able to exploit the opportunities opened up by the first generation of factory technology between 1780 and 1820. In the first case, the Prussian appetite for weaponry promoted an interest in the new metal processes; in the others, market shifts created by Bonaparte’s expansionism, and especially by his attempt to exclude British goods from Europe by the Continental System of 1806, allowed the growth of regional specialisms in textile production. But these areas too suffered from British industrial supremacy after the French defeat at Waterloo. The only other economy, apart from Britain, to achieve a sufficient combination of new technology, large-scale production, and structural transformation in this first wave of industrialization, was, logically enough, a small one: Belgium in the 1810s and 1820s. Here the centres were Ghent for cotton, Verviers for wool, Liege and Charleroi for metals.
But follower economies of any scale had to await the second wave, which may be located roughly in the period 1840-70. This period saw the industrial take-off of France, the German states, not unified into the German empire until 1871, and, across the Atlantic, the United States. By this time, the detailed qualifications for full industrial status had advanced: technology becomes more sophisticated and expensive with time and new entrants need new tools and products to break into markets already occupied by their predecessors. The three central requirements regarding power, scale, and structure will stand, but the means of achieving them will alter. Britain had begun with canals, cotton spinneries, and the iron puddling process. By the 1840s and 1850s, new entrants needed railways, engineering works, and steel mills.
Above all, they needed railways. Britain was the only major economy to industrialize without them. For every successor economy, they were basic equipment. They were the central innovation of the second industrial wave and their influence was huge. They could integrate disparate economic regions, which is what most nations or pre-nations consisted of at this time, into reasonably articulated markets. They could link production sites with distant raw materials. States were interested in them for their capacity to move troops rapidly, and, in some places, promoted them for this reason. They required unprecedented amounts of investment to concentrate in a single venture, and, in a whole range of countries, from France to Austria, from Italy to Russia, they forced a wholly new type of investment bank into being in order to provide this capital. Their construction required support from key technologies such as engineering, iron and steel, and coal, the classic heavy industries, and they could become dominant customers — in the German states, for instance, the rail sector accounted for nearly 25 per cent of domestic pig-iron consumption over the years 1850-4 —for these industries.
Of course, it is not satisfactory to pin the development of many economic sectors on a single transport industry; for it says nothing about first causes. While the rail sector provided services and markets for manufacturers, it required on its own account inputs of capital, labour, and enterprise from other quarters. Nevertheless, it is striking that, in economies such as France and the German states in the mid-nineteenth century, the curve of railway construction also traces the curve of industrial take-off.
Just as the first and second industrial waves were separated by a quarter-century of continental recession after 1815, so a further hiatus occurred after the railway-based upswing of 1840-70. This was the world-wide Great Depression of 1873-96. Ironically, this phenomenon was itself a result of improving levels of economic integration in the world, and indeed directly of the transport revolution in both railways and steel ships which affected so many countries, both in Europe and outside it, after 1850. For that revolution allowed the increasingly developed areas of Europe to connect up with those areas of the globe which produced foodstuffs and raw materials at the lowest cost. Wheat could be had from the Dakotas, from Canada, from Russia, from Hungary, or from Latin America; by the 1890s it was cheaper in Liverpool than at any time since the reign of Charles II. This was good for the consumer, and, on the face of it, cheap raw materials of all kinds were good for the industrialist. But, of course, western Europe itself contained producers of foodstuffs and raw materials. Cheap grain from the New World was not good for the large farmers of France or the new German empire; cheap tin from Malaya was not good for the miners of Cornwall.
Moreover, the downward pressure on prices, which was sufficient to trigger a general deflation, exerted a squeeze on profits in these countries which were not able to adjust all costs downwards. Older industrial producers, such as Britain, proved to be less flexible in this respect than newer ones such as Germany. Britain’s performance throughout the period 1870-1914 was lacklustre; Germany experienced tribulations during the 1870s but recovered rapidly.
Improved transportation also raised competition levels between industrial producers. By the 1870s and 1880s, some of the second-wave industrial producers, such as Germany and the United States, were more than competent industrial exporters in their own right. Older industrial producers, such as Britain, again had trouble in responding flexibly to this competitive challenge.
Even before the 1890s, the stronger industrial economies, such as imperial Germany and the United States, were casting off the restrictions of the Great Depression. What disposed of it in a more general way, and brought about a recovery in world price levels, was an upsurge in economic activity from a third wave of new industrial economies during the two decades preceding 1914. This group included Italy, Japan, Sweden, the Austrian section of the Habsburg empire, and Russia. A less extensive form of economic modernization could be argued for Spain and Hungary. Among the larger subset, there must be doubts as to whether Austria had achieved sufficient structural transformation for industrial take-off by 1914, and, despite the fact that it was the fifth largest industrial producer in the world by that date, there is a special difficulty about Russia.
The technologies with which this surge of world industrialization is associated are those of chemicals, electrical engineering, bicycles, and automobiles. These were scarcely suitable to form the central foundations for newly industrializing economies largely because of the demanding scientific content of many of them. They were more conspicuous in promoting further structural change among the second-wave follower economies: France, the United States, and, above all, Germany became the leading exponents of these high-technology manufactures, while Britain once again was slow to promote the ‘new industries’ of the years before 1914. By the early 1900s, Germany produced 80 per cent of the world’s output of artificial dyestuffs, was by 1907 the world’s largest producer of chemicals, and by 1913 controlled over half the world’s trade in electrical products.
It is definitely significant, however, that these new technology sectors were rarely entirely unrepresented even within the third-wave industrializers of the pre-1914 world. By the 1900s Italy numbered among her industrial products automobiles, typewriters, and chemical fertilizers; Japan was involved in joint ventures with western firms in explosives and electrical engineering; Hungary was producing switchgear for the London Underground system. These third-wave industrial economies needed railway systems, shipyards, and steel mills for their basic manufacturing equipment, but the full range of their technologies was wider and richer than that displayed by the classic follower economies of the 1840s and 1850s.