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WHAT IS INDUSTRIALISATION? ITS RELEVANCE FOR ECON 120: INDUSTRIALISATION PROVIDES THE CONTEXT FOR THE RISE OF MODERN BUSINESS IN HISTORICAL PERSPECTIVE: THE KEY CONCEPT: ‘INDUSTRIAL REVOLUTION’:ROOTED IN BRITISH EXPERIENCE AS THE FIRST INDUSTRIALISER THE BROAD DEFINITION:KEY COMPONENTS A) TECHNOLOGICAL INNOVATION:(i) SUBSTITUTION OF MACHINES FOR HUMAN SKILL (ii) SUBSTITUTION OF INANIMATE POWER FOR HUMAN ND ANIMAL FORCE NB) THE FLEXIBILITY OF THE TERM- 1st / 2nd / 3rd REVOLUTIONS:- IN TERMS OF TECHNOLOGY AND TIMING :1st = LATE C18 EARLY C19 – STEAM 2nd = 1890-1920 – ELECTRICITY 3rd = 1960 – PRESENT – AUTOMATION/IT OUR CONCERN TODAY : THE FIIRST INDUSTRIAL REVOLUTION NOT ONLY TECHNOLOGY, BUT ALSO:B) STRUCTURAL CHANGE TRANSITION FROM AN AGRARIAN, HANDICRAFT ECONOMY TO ONE DOMINATED BY INDUSTRY AND MACHINE MANUFACURE NEXT WEEKS TUTORIAL : THIS IS ‘ECONOMIC DEVELOPMENT’ BUT ‘ECONOMIC DEVELOPMENT’ WAS ON GOING THE FIRST INDUSTIAL REVOLUTION EMBRACED NOT ONLY TECHNOLOGICAL AND INDUSTRIAL CHANGE, BUT ALSO THE RISE OF THE SERVICE SECTOR IN THE BRITISH CASE: THE MOBILISATION OF CAPITAL:a) BANKS b) CAPITAL MARKET/STOCK EXCHANGES c) TRANSPORT INFRASTRUCTURE d) FORMAL EDUCATION C) THE PRODUCTIVE UNIT: DOMESTIC SYSTEM SUPERSEDED BY THE FACTORY SYSTEM a) THE DOMESTIC, OR ‘PUTTIG OUT’ SYSTEM (i) SMALL SCALE PRODUCTION (ii) LABOUR INTENSIVE (iii) LIMITED POWERS OF CONTROL OF WORKFORCE BY EMPLOYER b) THE FACTORY SYSTEM (i) THE VEHICLE FOR MECHANISATION GIVING ACCESS TO SCALE ECONOMICS (ii) CAPITAL INTENSIVE (iii) FACTORY DISCIPLINE LEADING TO INCREASED LABOUR PRODUCTIVITY (NB. EMBEZZLEMENT). D) THE STRUCTURE OF OWNERSHIP AND CONTROL EARLY FACTORIES WERE OPERATED IN THE CONTEXT OF ‘FAMILY CAPITALISATION’ :- THE FAMILY FIRM, OR PARTNERSHIP (i) FAMILY CAPITAISM IN BRITAIN ‘OWNERS MANAGED AND MANAGERS OWNED’ = THE DOMINANT FORM OF ENTERPRISE UNTIL WELL AFTER 1900. REASONS ii) a) LIMITED CAPITAL REQUIREMENTS OF EARLY INDUSTRIALISATION- DESPITE TECHNOLOGICAL CHANGE b) EXTERNALISATION : NB COTTON TEXTILES c) NATURE OF DEMAND : LIMITED ACCESS TO SCALE ECONOMICS BOTH HORIZONTAL AND VERTICAL CORPORATE CAPITALISM CHARACTERISED BY a) SALARIED MANAGERS DIFFERENIATED BY FUNCTION b) SHAREHOLDERS CORPORATE CAPITALISM RARE IN BRITISH MANUFACTURINS BEFORE 1900 THE EXCEPTION RAILWAY ENTERPRISE FROM THE 1830s REASONS:a) HUGE CAPITAL REQUIREMENTS NEED TO RAISE FUNDS ON OPEN CAPITAL MARKET b) COMPLEXITY OF THE MANAGERIAL FUNCTION; HENCE THE NEED FOR ‘SPECIALISTS’ a) + b) BEYOND THE RESOURCES OF FAMILY FIRMS E) INFLUENCES ON THE DEMAND SIDE EMPHASIS SO FAR ON SUPPLY-SIDE INNOVATIONS THE DEMAND SIDE INDUSTRIALISATION + ECONOMIC DEVELOPMENT DID NOT TAKE PLACE IN A VACUUM. BOTH WERE A SUPPLY-SIDE RESPONSE TO: a) INCREASED DEMAND b) INCREASED DEMAND SUSTAINED IN THE LONG-TERM BY RISING PURCHASING POWER/REAL INCOMES OF CONSUMERS THE SOURCES OF DEMAND a) AGRICULTURAL INNOVATION = LOWER FOOD PRICES HIGHER REAL INCOMES TO SPEND ON MANUFACTURES b) AGRICULTURAL INNOVATION = LABOUR PRODUCTIVITY THEREBY RELEASING LABOUR FOR FACTORY/URBAN EMPLOYMENT c) RURAL DEMAND COMPLETED BY RICHER URBAN CONSUMERS d) DEMAND FOR MANUFACTURERS STIULATED BY FALLIN PRICES NEXT WEEK’S TUTORIAL (AGRICULTURE INDUSTRY) (1) INDUSTRIALISATION (2) ECONOMIC DEVELOPMENT (STRUCTURAL CHANGE) ECONOMIC GROWTH ‘A SUSTAINED INCREASE IN REAL PER CAPITAL INCOMES’ :THE PRODUCT OF (1) AND (2)