The British Industrial revolution and incentives for new technologies. This
section raises a very important economic history question:
why the Industrial Revolution happened first in Britain
as opposed to other countries like France, Netherlands or China or
India, and this section answers this question by using
the model that we built so far, the cost and
technology model. As before these, are isocost curves
and these are technologies. Let's focus on the technology
of clock production before the Industrial Revolution
in 17th century. That technology here is represented by
B, which is a relatively labor-intensive technology: you need
four workers and only two tons of coal to run this technology.
This technology made sense because the price of labor was
relatively low at that time. As you can see it didn't make
sense for Britain to move from technology B
to technology A, which is a more energy-intensive technology. In other
words Britain didn't have any incentive to
automate, why? Because the price of labor was low.
As you can see, technology A lies to the right of our isocost curves,
so it didn't make economic sense to move from B
to A, but things started to change as Britain moved from
17th century to 18th century. Wages start to gradually increase,
therefore Britain moved from this isocost curve JH
to this new iso cost curve FG, which is steeper and reflects the
price of labor going up. Now in this new world
Britain had an incentive to replace labor: it had an incentive to automate, why?
Because the cost of labor was increasing, therefore it had an incentive
to move away from this labor-intensive technology towards a
more energy-intensive one. It had an incentive
to invent new automated technologies. As you can
see now in this new isocost curve technology B
is more costly and technology A makes economic sense. Because of this
incentive we got this new technology.
Now let's have a quick look at the evidence and see whether the data fits
the story or not. If we scroll up we find data
from the early 18th century on the relative price of labor wages
to the relative price of energy. In these cities, Newcastle, London, Amsterdam,
Strasbourg, Paris and Beijing and as you can see,
in Britain the relative cost of labor to energy was highest, therefore Britain had
the highest incentive to automate to replace labor. So the data
is consistent with the theoretical story that I told you.
Now let me end with this important question: is this simple model of isocost
lines and technology useful to think
about the next industrial revolution everybody is
talking about, the upcoming artificial intelligence revolution? Thanks to the
advancements in big data and computer sciences
everyone is excited about driverless cars, 3-D printers,
a new generation of industrial robots that are going to replace our physical
and cognitive abilities. This upcoming revolution poses a series of important
questions to think about, for instance is AI going to impact all
the sectors or countries in a uniform way?
Who will be the main winners and losers of this revolution within societies?
And finally, can we shape this revolution? Can governments shape the advancements
in AI in a way that we end up with
technologies that benefit most people in the society? Now I believe
the simple model of isocost lines and technology can help us
to think about this question, so I'll leave the rest of it to you.
Thank you.