The Rise of Modern Business: Great Britain, the United States, Germany, Japan, and China Book

The Unbound Prometheus is David Landes' unequalled history of The Industrial Revolution'capitalized, as in what happened starting in England in the 18th century where human and animal power was replaced with steam power, the expertise of the craftsman was broken down into parts that could be performed by machine or low-skill workers being carefully managed in a factory, and the extraction and processing of ores and chemicals became the basis of production; in fact, improvement of technology, change itself, became the most notable constant of daily life. Landes attempts to describe what happened, and when and where, as well as answer the larger questions such as why England? And why then? He follows the process of industrialization right through to the early 1960s when the book was written, comparing and contrasting how different nations and societies transformed themselves, or failed to do so. In this latter quest he is not nearly as polemical as in his more recent book, The Wealth and Poverty of Nations, but neither does he restrain his opinions to avoid giving offence.

The book begins by laying out just what the industrial revolution refers to. Landes is quite emphatic in noting that it began long before steam power was harnessed; that, in fact, steam power was a result of the industrial revolution. But like the hundreds, or perhaps thousands, of other technological innovations that were a result of the industrial revolution, it was also a cause. That is to say that every meaningful invention spurred on the changes that were occurring by creating bottlenecks in the chain of processes that took raw materials and turned them into finished, marketable products. This massive parallelism and reinforcement between innovations and the methods of production makes it difficult to identify the essential elements of English society at that point in time that created the spark that became the industrial revolution. Landes is most circumspect on this point and pirouettes like a dancing master while telling us of the gradual accumulation of small improvements in the manufacture of textiles that while telling us of the gradual accumulation of small improvements in the manufacture of textiles that eventually became a self-sustaining impetus to continue making improvements. Without ever explicitly stating it as a hypothesis, he nevertheless implies that the putting-out system of textile production was the innovation (though it was neither intended nor recognized as an innovation at the time) that was most responsible for starting the chain reaction.

Putting out was the process by which merchants with raw materials, who might not need the high quality output of the guilds, would take advantage of rural farm workers who had spare time in the off season to produce goods from those raw materials. In the urban environment, the guilds held the power of both law and outlaw force to prevent anyone from engaging in their trade. They were not able to have the same influence in the rural environment. In textiles, especially, did the merchant who supplied the raw material and sold the finished product, gain the upper hand on the levers of production. Throughout the medieval period, the English textile industry became more and more a cottage industry, so that it was mostly rural by the 1600s.

It is within this English textile cottage industry that we first see the emergence of the phenomenon of mutual escalation that is the engine of industrial change. Mutual escalation refers to a process where two groups try to outsmart each other to gain an advantage. There is competition between the groups and cooperation within. When one group gains the upper hand, then they are free to enjoy their advantage until such time as the other group finds a way to counter their advantage. The onus is then passed back to the first group to find a way to once again gain the advantage. The group that currently has the advantage will not keep seeking a further advantage because the whole point of gaining the advantage is to realize a profit from that advantage; if they spend on seeking a further advantage, then they are unable to gain from their advantage. Both sides feel cheated when they don't have the advantage.

In an idealized model of the putting out process, merchants contract out piece-work to workers and supply raw materials. The merchants then come back some time later to collect the finished products which they sell at the market (local, urban, or for export). Their profit is the sale price minus the cost of raw materials and the cost of labour. The workers' profit is their hourly wage plus any skim they are able to take (if they can make the finished product from less than the expected quantity of raw material, then they can skim off the unused raw material and make something else from it). The merchant would like to know how long it really takes to make the finished product so that the worker isn't getting paid too much, in addition, the merchant would like to know how much of the raw material goes into the finished product so he can supply that much and no more. If the worker can find a way to make the finished product faster or with less effort or with less material, then he can gain an advantage over the merchant (but not other workers, so there is no barrier to sharing the innovation). If the merchant can find a way to learn more about how the work is done, then he can use that information to gain an advantage over the workers (but not other merchants, so they share their techniques). When the workers come up with a new innovation, it spreads throughout the region. Until the merchants catch on, the workers profit from their advantage. Once the merchants figure out what is going on and reduce the workers' wages, then the merchants profit from the innovation used by the workers. There is no natural end to this process as the incentive to innovate simply gets passed back and forth. As long as the innovations are gradual, then the rest of the system can continually adapt (e.g. the production of raw material must meet the demand, likewise the demand for finished products must increase with supply).

Much as the introduction of mechanical clocks trained the population to keep regular working hours, thereby coordinating the division of labour, so too did the mutual escalation between merchants and the workers they were putting out to, train the population in the habit of seeking innovation in the methods of production. This habit included the rapid communication of new methods and a willingness to put such methods into practice. Once the factory system was introduced, the habit was well engrained, which was a good thing because the presence of continual oversight by management would never have allowed the practice to arise in the first place. However, the long process of gradual innovation ensured that English society was already full of tinkerers who were willing to share their methods, so new ways of making things kept being invented and then implemented in the factories.

This is, of course, just a fanciful story to illustrate the principle. Landes does not stoop to such blatant invention and, as mentioned earlier, is not willing to hedge his bets on any one development. But he has 600 pages to develop his theme and I only have a couple, so this crude but illuminating bit of fantasy has to stand in for a more nuanced view. It must be remembered, though, that both the workers who were improving the methods of production and the merchants who were improving the management of production workers were just trying to put one over on the opposing side; there was no conscious effort to increase economic production throughout the land. But any improvement in one aspect of production necessarily led to bottlenecks at the next stage of the process, so once the cycle began there were constant incentives to innovate created by the most recently adopted innovations.

The logistical problems of production bottlenecks gave rise to the increasing use of manufactories for textile production. These were buildings where many or all of the stages of production were combined under one roof, but without a central power source (once central power was added, they became "factories"). Although there was improved supervision of the workers, this was initially carried out by senior people who also performed work, along the lines of the craft houses that were run by a single master. Capital was far less important during this early phase of the industrial revolution than is usually thought as the cost of fitting a small workshop of a dozen, or so, workers with a jenny or a mule and a carding machine was well within the reach of many individuals.

The condition of mutual escalation that existed between workers and merchants was not the only condition that primed England for the industrial revolution. The transportation network, with canals, decent roads (at least by continental standards), and every part of the country being close to the coast for shipping, allowed not just goods to move freely, but also information about improved methods and products. On the continent, the roads were plagued with tolls based on ancient rights from medieval times. The aristos, too, were different in England. There they took an active interest in new methods of farming and increasing the productivity of their holdings while the continentals left all that to their stewards while they pursued the genteel life of the useless rich. The social world of the working class played an enormous role as well; the dissenters of Northern Europe had paid a tremendous price to break from Rome and allow freedom of thought, they weren't about to set it aside and return to serfdom. The spirit of inquiry spread throughout society and led to the birth of science, the Royal Society in England being one of the most active centers of this new method for discovering reliable knowledge about the world.

Although scientific inquiry had to mature a while before it could lead the industrial revolution, it did give rise to Newcomen's steam engine (despite some claims to the contrary, Newcomen was tutored by Robert Boyle and was fully aware of Denys Papin's work, the atmospheric steam engine was invented entirely within the scientific tradition). Nothing is more closely identified with the industrial revolution than the steam engine, though it took about a hundred years before it swept the field. Newcomen's engine remained in its original form, used only for pumping out mines, for about 50 years before people started to think about improving it (but as with everything in the industrial revolution, other innovations were necessary, especially in metallurgy and machining, before steam power could start expanding to other areas of production. Watt's improvements were especially significant, but there was a continuous drive to more efficient and reliable engines and using them to drive machines. Along with machines came the need to repair and maintain machines, driving the move to standardization of basic parts and tools (e.g. bolt threads, wrench sizes, etc.). Factories built around machines were much more expensive than the small scale textile factories of the early industrial revolution, so new methods of financing such as joint stock companies and limited liability corporations had to be invented to fuel the rise of capitalism.

Landes takes us through the various industries and the continuous cycle of challenge and response that new inventions produced in these industries. Chemistry was one of the primary industries, being intimately tied to dyeing and processing of textiles as well as being the foundation of metallurgy. In chemistry we see another repeating motif of industrialization whereby waste products are transformed from a nuisance to an opportunity. What to do with the noxious wastes of chemical byproducts was answered by treating them like another bottleneck in production and using innovation to turn waste into the raw materials of further processing.

All of this was happening in England while Europe slept. They tried to protect their hopelessly outclassed industries by tariffs and trade barriers but eventually they had no choice but to start to industrialize or become utterly dependent on England. They bought and stole technology from England as best they could (while England fought an inevitably losing war to prevent the export of technology) but they kept running into the same problems that would plague so many of the industrializing nations of the 20th century: industry based on technology requires massively parallel systems that support each other. You can't just take a method for smelting steel and put it to work in a factory without a thousand supporting technologies from trained workers to chemical analysis of ore. Most of the supporting technologies and knowledge bases were not even understood at the time, let alone codified in books and manuals. There was a great deal of intangible knowledge, as there still is, with industrial production. Despite the fact that the basic principle of mechanization is to take the specialized knowledge of a craftsman and break his procedures down into small chunks that any labourer can be taught to do, and then run an assembly line to replicate the overall procedure, the industrial revolution was always a gradual process, with the whole society learning how to do things without ever knowing that this knowledge base was accumulating. It's akin to an apprenticeship where there is a body of formal knowledge that must be learned, but mostly you have to hang around those who know how to do the thing until you know it too. This is the body of intangible knowledge that you pick up along the way without really knowing that it is happening.

Europe finally caught up to England in the period just past the halfway point of the 19th century. Their transportation networks had been overhauled and modernized; they had found the ores, minerals, and natural resources necessary for industrial production; joint stock companies, investment banks and limited liability corporations were all present; and mechanization and technological innovation was accepted as the new normal. As in England, it was a long process, moving through textiles, then steam power, and then metallurgy, before every industry was subject to modernization. There is a persistent line of thought that those coming to an industry later have an enormous advantage because they are able to tool up with the most recent technology and leapfrog ahead of the entrenched competition. This is rarely the case, however, in part because of the unseen support systems that lie behind the technology, both social and resource based, but also because of the inertia of human institutions. On one front, though, the Europeans were able to vault over the English and here inertia worked in the other direction.

In their efforts to catch up to the English, many nations on the continent, the Germans in the lead, set up government instituted educational systems to prepare their citizens for the new, industrialized world. The English, however, had found their success through the tinkerers and innovators and had gone to full-on laissez-faire capitalism, disastrously trusting in "market forces" to lead the country to continued economic dominance. By the late 1800s, the leading technology was just too advanced for self-taught inventors to have an impact; electrical engineering, organic chemistry, internal combustion engines, and more were all complex undertakings that required a strong foundation in scientific knowledge and research to make headway. This period is known as the second industrial revolution because the introduction of science as the foundation for technology represented a change almost as significant as the initial period of mutual escalation between workers and merchants that started industrialization.

The second industrial revolution relied on another episode of mutual escalation, although it was between groups, in which the processes of innovating and exploiting those innovations was distributed among individuals. We still look to brilliant individuals to credit with significant inventions but starting in the later 1800s, it was really a web of connections that resulted in change rather than any lone genius. However, by putting this collective cognition to work on the problem of technological innovation the pace of improvements took off dramatically. The escalation process is a bit more difficult to see in this period because the process of discovery had been institutionalized with the invention of science. The scientists were interested in understanding the world, in the production and verification of new knowledge. The industrialists, by this time, realized that there was no better path to finding better ways of making things than using scientific knowledge to improve their processes. Thus the industrialists were willing to spend money on scientific research but wanted the scientists to concentrate on their particular industrial process. The scientists, on the other hand, could only look for new knowledge at the cutting edge of science; they couldn't arbitrarily decide where breakthroughs might be made. Both scientific work and industrial production were carried out by large groups of people, all doing small parts of the overall body of work. Corporate CEOs could direct their employees but they still had to be responsive to their customers and their potential investors. Individual scientists had to build on the foundations laid down by other scientists. No individuals could direct the path taken by either science or industry; neither the future needs of society nor the time and place of future discoveries could be predicted. Still, the industrialists would try to direct science while the scientists would try to get funding from the industrialists for pure research, the mutual escalation leading to both scientific discovery and technological innovation.

Landes carries the reader through the First World War, the interwar years and the ruinous reparations imposed on Germany (though he is quite firm in his belief that this was a new situation in the world and had Germany been the victor, they would have been equally hard on their enemies, and so Europe was in a kind of trap). He takes us through the depression and the Nazi re-armament, World War II and the rebuilding of Europe (With the Americans, at least, having learned the lesson of the first go around). The story he tells of the 20th century is really one of economics rather than innovation and at one point, he even goes so far as to make the ludicrous argument that all 20th century inventions (up to the mid 60s when this was written) were merely incremental improvements on technology that existed at the turn of the century. But the strength of the book is really the marvellously detailed history of the industrial revolution, first in England, then in Europe (with a bit about North America and Australia; the rise of Asia being a bit too recent for much discussion). The reader often wishes for photographs and illustrations, for many of the inventions are now so deep in history that very few people will know what they are (thankfully, and despite Landes' cheap shot at 20th century technology, there is the internet). With only 600 pages, though, he cannot give more than an overview of many of the technologies that required hundreds of innovations to get to their ultimate form (steam engines as just one example of many) but the main thrust of the book is to show how industrialization became a self-sustaining activity with no end in sight. For that story, this book succeeds mightily. Highly recommended to anyone who is even slightly interested in technology.