19 December, 2011

Strategy lessons from the Industrial Revolution

Flashback: First posted  January 2010. Something to think about over the holiday.

One of my best reads recently had the somewhat dry title “The British Industrial Revolution in Global Perspective (New Approaches to Economic and Social History)“. Don’t be put off. Written by Robert Allen, Professor of Economic History at Oxford University, it’s a very readable* and convincing account of why the Industrial Revolution happened in 18th-century Britain, rather than anywhere else. Allen discounts any notions that Britons were superior entrepreneurs or innovators; indeed, other countries enjoyed similar advances in science, education, institutions and commerce. Instead, after setting the scene with societal and economic developments in the 16th and 17th centuries, Allen points to some primary factors which came together only in Britain and nowhere else:
  • The highest wages in the world (thanks to the Black Death and its effects on British society).
  • Short supplies of timber for fuel.
  • An abundance of cheap energy from coal (albeit not very useful initially, but developed to supply growing city populations, along with the motive technology to de-water the mines).
  • Ample supplies of iron ore close to that coal.
Those factor conditions did not come together anywhere else, and so there were not the incentives and rewards for creating the wave of technological and business innovation that transformed Britain (and later the world). Allen also shows that the state played very little distinctive role in the British transformation. It was the cumulative efforts of individual entrepreneurs, engineers and other innovators addressing real business problems and opportunities which, because they were common in Britain, also generated classic cluster effects.

While interesting in its own right, Allen’s book reinforced for me much of what is wrong with current economic development thinking. All we seem to hear is more education, more science, more infrastructure, less regulation, less tax, and so on. All well and good (at least up to a point) but these are me-too strategies. Everyone else is following them, more or less. Me-too economies can’t make the step-change that Britain achieved in the 18th century (and sustained for 200 years).

The questions I think business innovators should examine are not only “What do we do to sustain and grow the industries we already have?” but also “What unique un-addressed problems and opportunities do we have which, if resolved, will enable us to build new unique and sustainable global competitive advantage?” And for policy-makers, “Will you adjust your economic development mechanisms to support those new initiatives?”

I can think of at least a couple of significant problem/opportunity combinations where New Zealand could build global leadership. Know anyone with some serious spare investment dollars?

*For those wanting data and/or academic references, Allen provides plenty, but they don’t get in the way.

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