HIST363: Global Perspectives on Industrialization

The Industrial Revolution developed first in England because it had many of the right preconditions. England had experienced an agricultural revolution where mechanized farming equipment was replacing farm labor, had requisite waterpower, had large reserves of iron and coal, and had a vast empire from which to draw the raw materials for industrial production, such as cotton from India, and new colonial markets to sell its finished products.

The concept of mercantilism was the accepted economic theory before Adam Smith's seminal work The Wealth of Nations. The mercantile system was based on the premise that national wealth and power are best served when countries increase exports and collect precious metals, goods, and raw materials in return.

​​Adam Smith, Max Weber, Karl Marx, and Friedrich Engels were four key theorists and philosophers who discussed industrialization and economic change.

Adam Smith (1723–1790), the Scottish economist who many consider the "father" of modern economics, coined the idea of the invisible hand, in which he described how changes in supply and demand for an item typically return to a state of economic equilibrium. When a shortage of a product occurs, businesses usually raise their prices to take advantage of the increased demand. The profit margin encourages other businesses to enter the market, increase production, and cure the shortage. When too many producers flood the market with increased supply, manufacturers are forced to lower the price of their products to get rid of their excess inventory and stay in business. Eventually, the competition among manufacturers achieves a market equilibrium or "natural price".

A German-American economist, Georg Frederich List (1789–1846), described a similar series of stages to what Adam Smith had listed, but he went a step further. He explained that countries might need to temporarily protect their infant industries through tariffs or quotas from foreign competition until these industries mature because "these transitions cannot take place automatically through the "natural course of things", such as through market forces".

​While Adam Smith made a case for what economists would call laissez-faire capitalism, Karl Marx (1818–1883) and Friedrich Engels (1820–1895) were highly critical of the exploitative nature of industrial capitalism. Smith tended to ignore these social byproducts, which were still in their infancy when he wrote his Wealth of Nations.

Known for their views on social and class conflict within society, Marx and Engles witnessed and protested against the extreme poverty and horrendous living conditions that capitalist practices created in many newly-industrialized cities. They predicted a class struggle would occur between the lower and upper classes over controlling the means of production. Marx and Engels advocated for the proletariat (the working class) to rise up in revolt against the bourgeoisie (the upper classes and wealthy elite) to demand better working conditions. They predicted society would become more stable and equal once capitalism fails.

We will explore Karl Marx's views on alienation, conflict theory, and class struggle in more detail in Unit 5.

Max Weber (1864–1920), a German sociologist, believed that traditional hierarchical societies based on honor, prestige, and religion tended to discourage ownership of capital and modern industrial and commercial enterprises. The rise of Protestantism, particularly Calvinist theology (a major branch of Protestantism), influenced the rise of modern capitalism by reducing the importance of these societal hierarchies in favor of individual freedoms and the entrepreneurial spirit. He wrote, "the Protestants of Germany are today absorbed in worldly economic life, and their upper ranks are most indifferent to religion". He describes "materialistic joy" and an "intimate relationship" with "capitalistic acquisition".

Joseph Schumpeter (1883–1950), an Austrian political economist, coined the concept of "creative destruction" to describe how the new constantly replaces the old. He compared the economy to a living organism, constantly growing and changing to maintain its health. Entrepreneurs periodically disrupt existing industries, including the workers, businesses, and entire sectors that go along with it. This is part of the normal business cycle, which supports and promotes innovation and productivity. Many of today's economists look to Schumpeter's work to explain how technology and automation processes have disrupted the manufacturing industry in the current economy.

By social value, Schumpeter refers to the value society places on certain goods, depending on the wants or needs of the entire community. Social value influences that of the individual and the exchange value. For example, I may not like to eat avocados, but I may value them and even become an avocado farmer because the rest of society values them and will buy them from me. I receive something in exchange for the avocados I sell, i.e., money.

Although Schumpeter promoted the benefits of a free market, capitalist innovation, and entrepreneurial growth, he also believed that elements of socialism would eventually replace capitalism due to capitalism's tendency to promote human greed, monopoly, and social inequalities.

Popularized from the 1950s into the 1980s (especially in Latin America), Import Substitution (ISI) is the idea of replacing imports with domestic production as a good way to help developing economies reduce foreign dependence. For example, India and Latin America promoted import substitution industrialization to promote domestic production with mixed results. Domestic industries were established, but production levels and product quality suffered due to a lack of foreign competition. Nevertheless, the state-sponsored support system provided an economic foundation that allowed businesses to eventually integrate into the global economy. This support arguably helped cultivate the robust economic growth many countries are experiencing today.

Walt Rostow (1916–2003), an American economist, identified five stages of economic development: 1. the traditional society, 2. the preconditions for take-off, 3. the take-off, 4. the drive to maturity, and 5. the age of high mass-consumption. His theories, released in 1960, relied heavily on modernization theory, which suggested that all countries will follow a similar path to industrialized development. Acknowledging the significant disparities between the wealthy countries and those that seemed to have been "left behind" in their industrial development, modernization theory also suggests that wealthy countries have some responsibility in helping to develop poorer ones and that by doing so, "all boats will rise".

Dependency Theory is a way of conceptualizing the effects of the modern globalized economy on poorer nations. As with social classes within a society, it is concerned with the interdependence between poor countries, where resources are extracted and goods are manufactured to be consumed in wealthier countries at low prices; and wealthier countries, which then sell those goods back to poorer countries at prices that deplete the poorer countries' resources, in a globalized alienation of labor. In this way, poorer countries may be somewhat "stuck" in their development, unable to get ahead. In some ways, Dependency Theory is considered a response to the "failure" of Modernization Theory.