Wednesday, 4 May 2011

Human capital and the industrial revolution

Or the knowledge economy has been important for a long time. A question often asked about the industrial revolution is, Why Britain? Well part of the answer may be human capital, the knowledge and skills of the British workforce. A new NBER working paper,"The Rate and Direction of Invention in the British Industrial Revolution: Incentives and Institutions", by Ralf Meisenzahl and Joel Mokyr argues:
During the Industrial Revolution technological progress and innovation became the main drivers of economic growth. But why was Britain the technological leader? We argue that one hitherto little recognized British advantage was the supply of highly skilled, mechanically able craftsmen who were able to adapt, implement, improve, and tweak new technologies and who provided the micro inventions necessary to make macro inventions highly productive and remunerative. Using a sample of 759 of these mechanics and engineers, we study the incentives and institutions that facilitated the high rate of inventive activity during the Industrial Revolution. First, apprenticeship was the dominant form of skill formation. Formal education played only a minor role. Second, many skilled workmen relied on secrecy and first-mover advantages to reap the benefits of their innovations. Over 40 percent of the sample here never took out a patent. Third, skilled workmen in Britain often published their work and engaged in debates over contemporary technological and social questions. In short, they were affected by the Enlightenment culture. Finally, patterns differ for the textile sector; therefore, any inferences from textiles about the whole economy are likely to be misleading.
If human capital was a big player in the industrial revolution then the claims made by some politicians and bureaucrats that in recent times we have developed a "knowledge economy" based around ICTs and the growing importance of human capital look a bit odd. They seems to have missed the basic point that knowledge and human capital have always been important to the economy.

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