Why Nations Fail: The Origins of Power, Prosperity, and Poverty (30 page)

The state started expanding, with expenditures soon reaching around 10 percent of national income. This was underpinned by an expansion of the tax base, particularly with respect to the excise tax, which was levied on the production of a long list of domestically produced commodities. This was a very large state budget for the period, and is in fact larger than what we see today in many parts of the world. The state budgets in Colombia, for example, reached this relative size only in the 1980s. In many parts of sub-Saharan Africa—for example, in Sierra Leone—the state budget even today would be far smaller relative to the size of the economy without the large inflows of foreign aid.

But the expansion of the size of the state is only part of the process of political centralization. More important than this was the qualitative way the state functioned and the way those who controlled it and those who worked in it behaved. The construction of state institutions in England reached back into the Middle Ages, but as we’ve seen (
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), steps toward political centralization and the development of modern administration were decisively taken by Henry VII and Henry VIII. Yet the state was still far from the modern form that would emerge after 1688. For example, many appointees were made on political grounds, not because of merit or talent, and the state still had a very limited capacity to raise taxes.

After 1688 Parliament began to improve the ability to raise revenue through taxation, a development well illustrated by the excise tax bureaucracy, which expanded rapidly from 1,211 people in 1690 to 4,800 by 1780. Excise tax inspectors were stationed throughout the country, supervised by collectors who engaged in tours of inspection to measure and check the amount of bread, beer, and other goods subject to the excise tax. The extent of this operation is illustrated by the reconstruction of the excise rounds of Supervisor George Cowperthwaite by the historian John Brewer. Between June 12 and July 5,
1710, Supervisor Cowperthwaite traveled 290 miles in the Richmond district of Yorkshire. During this period he visited 263 victualers, 71 maltsters, 20 chandlers, and one common brewer. In all, he took 81 different measurements of production and checked the work of 9 different excisemen who worked for him. Eight years later we find him working just as hard, but now in the Wakefield district, in a different part of Yorkshire. In Wakefield, he traveled more than nineteen miles a day on average and worked six days a week, normally inspecting four or five premises. On his day off, Sunday, he made up his books, so we have a complete record of his activities. Indeed, the excise tax system had very elaborate record keeping. Officers kept three different types of records, all of which were supposed to match one another, and any tampering with these records was a serious offense. This remarkable level of state supervision of society exceeds what the governments of most poor countries can achieve today, and this in 1710. Also significantly, after 1688 the state began to rely more on talent and less on political appointees, and developed a powerful infrastructure to run the country.

The Industrial Revolution was manifested in every aspect of the English economy. There were major improvements in transportation, metallurgy, and steam power. But the most significant area of innovation was the mechanization of textile production and the development of factories to produce these manufactured textiles. This dynamic process was unleashed by the institutional changes that flowed from the Glorious Revolution. This was not just about the abolition of domestic monopolies, which had been achieved by 1640, or about different taxes or access to finance. It was about a fundamental reorganization of economic institutions in favor of innovators and entrepreneurs, based on the emergence of more secure and efficient property rights.

Improvements in the security and efficiency of property rights, for example, played a central role in the “transportation revolution,” paving the way for the Industrial Revolution. Investment in canals and
roads, the so-called turnpikes, massively increased after 1688. These investments, by reducing the costs of transportation, helped to create an important prerequisite for the Industrial Revolution. Prior to 1688, investment in such infrastructure had been impeded by arbitrary acts by the Stuart kings. The change in the situation after 1688 is vividly illustrated by the case of the river Salwerpe, in Worcestershire, England. In 1662 Parliament passed an act to encourage investment to make the Salwerpe navigable, and the Baldwyn family invested £6,000 to this end. In return they got the right to charge people for navigation on the river. In 1693 a bill was introduced to Parliament to transfer the rights to charge for navigation to the Earl of Shrewsbury and Lord Coventry. This act was challenged by Sir Timothy Baldwyn, who immediately submitted a petition to Parliament claiming that the proposed bill was essentially expropriating his father, who had already heavily invested in the river in anticipation of the charges he could then levy. Baldwyn argued that “the new act tends to make void the said act, and to take away all the works and materials done in pursuance thereof.” Reallocation of rights such as this was exactly the sort of thing done by Stuart monarchs. Baldwyn noted, “[I]t is of dangerous consequence to take away any person’s right, purchased under an act of Parliament, without their consent.” In the event, the new act failed, and Baldwyn’s rights were upheld. Property rights were much more secure after 1688, partly because securing them was consistent with the interests of Parliament and partly because pluralistic institutions could be influenced by petitioning. We see here that after 1688 the political system became significantly more pluralistic and created a relatively level playing field within England.

Underlying the transportation revolution and, more generally, the reorganization of land that took place in the eighteenth century were parliamentary acts that changed the nature of property ownership. Until 1688 there was even the legal fiction that all the land in England was ultimately owned by the Crown, a direct legacy from the feudal organization of society. Many pieces of land were encumbered by numerous archaic forms of property rights and many cross-cutting claims. Much land was held in so-called equitable estates, which
meant that the landowner could not mortgage, lease, or sell the land. Common land could often be used only for traditional uses. There were enormous impediments to using land in ways that would be economically desirable. Parliament began to change this, allowing groups of people to petition Parliament to simplify and reorganize property rights, alterations that were subsequently embodied into hundreds of acts of Parliament.

This reorganization of economic institutions also manifested itself in the emergence of an agenda to protect domestic textile production against foreign imports. Not surprisingly, parliamentarians and their constituents were not opposed to all entry barriers and monopolies. Those that would increase their own market and profits would be welcome. However, crucially, the pluralistic political institutions—the fact that Parliament represented, empowered, and listened to a broad segment of society—meant that these entry barriers would not choke other industrialists or completely shut out newcomers, as the
Serrata
did in Venice (
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–
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). The powerful woolen manufacturers soon made this discovery.

In 1688 some of the most significant imports into England were textiles from India, calicoes and muslins, which comprised about one-quarter of all textile imports. Also important were silks from China. Calicoes and silks were imported by the East India Company, which prior to 1688 enjoyed a government-sanctioned monopoly over the trade with Asia. But the monopoly and the political power of the East India Company was sustained through heavy bribes to James II. After 1688 the company was in a vulnerable position and soon under attack. This took the form of an intense war of petitions with traders hoping to trade in the Far East and India demanding that Parliament sanction competition for the East India Company, while the company responded with counterpetitions and offers to lend Parliament money. The company lost, and a new East India Company to compete with it was founded. But textile producers did not just want more competition in the trade to India. They wanted imports of cheap Indian textiles (calicoes) taxed or even banned. These producers faced strong competition from these cheap Indian imports. At this point the most
important domestic manufacturers produced woolen textiles, but the producers of cotton cloths were becoming both more important economically and more powerful politically.

The wool industry mounted attempts to protect itself as early as the 1660s. It promoted the “Sumptuary Laws,” which, among other things, prohibited the wearing of lighter cloth. It also lobbied Parliament to pass legislation in 1666 and 1678 that would make it illegal for someone to be buried in anything other than a woolen shroud. Both measures protected the market for woolen goods and reduced the competition that English manufacturers faced from Asia. Nevertheless, in this period the East India Company was too strong to restrict imports of Asian textiles. The tide changed after 1688. Between 1696 and 1698, woolen manufacturers from East Anglia and the West Country allied with silk weavers from London, Canterbury, and the Levant Company to restrict imports. The silk importers from the Levant, even if they had recently lost their monopoly, wished to exclude Asian silks to create a niche for silks from the Ottoman Empire. This coalition started to present bills to Parliament to place restrictions on the wearing of Asian cottons and silks, and also restrictions on the dyeing and printing of Asian textiles in England. In response, in 1701, Parliament finally passed “an Act for the more effectual imploying the poor, by incouraging the manufactures of this kingdom.” From September 1701, it decreed: “All wrought silks, bengals and stuffs, mixed with silk of herba, of the manufacture of Persia, China, or East-India, all Calicoes painted, dyed, printed, or stained there, which are or shall be imported into this kingdom, shall not be worn.”

It was now illegal to wear Asian silks and calicoes in England. But it was still possible to import them for reexport to Europe or elsewhere, in particular to the American colonies. Moreover, plain calicoes could be imported and finished in England, and muslins were exempt from the ban. After a long struggle, these loopholes, as the domestic woolen textile manufacturers viewed them, were closed by the Calicoe Act of 1721: “After December 25, 1722, it shall not be lawful for any person or persons whatsoever to use or wear in Great Britain, in any garment or apparel whatsoever, any printed, painted, stained or dyed Calicoe.” Though this act removed competition from
Asia for English woolens, it still left an active domestic cotton and linen industry competing against the woolens: cotton and linen were mixed to produce a popular cloth called fustian. Having excluded Asian competition, the wool industry now turned to clamp down on linen. Linen was primarily made in Scotland and Ireland, which gave some scope to an English coalition to demand those countries’ exclusion from English markets. However, there were limits to the power of the woolen manufacturers. Their new attempts encountered strong opposition from fustian producers in the burgeoning industrial centers of Manchester, Lancaster, and Liverpool. The pluralistic political institutions implied that all these different groups now had access to the policy process in Parliament via voting and, more important, petitioning. Though the petitions flew from the pens of both sides, amassing signatures for and against, the outcome of this conflict was a victory for the new interests against those of the wool industry. The Manchester Act of 1736 agreed that “great quantities of stuffs made from linen yarn and cotton wool have for several years past been manufactured, and have been printed and painted within this kingdom of Great Britain.” It then went on to assert that “nothing in the said recited Act [of 1721] shall extend or be construed to prohibit the wearing or using in apparel, household stuff, furniture or otherwise, any sort of stuff made out of linen yarn and cotton wool, manufactured and printed or painted with any colour or colours within the kingdom of Great Britain.”

The Manchester Act was a significant victory for the nascent cotton manufacturers. But its historical and economic significance was in fact much greater. First, it demonstrated the limits of entry barriers that the pluralistic political institutions of parliamentary England would permit. Second, over the next half century, technological innovations in the manufacture of cotton cloth would play a central role in the Industrial Revolution and fundamentally transform society by introducing the factory system.

After 1688, though domestically a level playing field emerged, internationally Parliament strove to tilt it. This was evident not only from the Calicoe Acts but also from the Navigation Acts, the first of which was passed in 1651, and they remained in force with alternations for
the next two hundred years. The aim of these acts was to facilitate England’s monopolization of international trade—though crucially this was monopolization not by the state but by the private sector. The basic principle was that English trade should be carried in English ships. The acts made it illegal for foreign ships to transport goods from outside Europe to England or its colonies, and it was similarly illegal for third-party countries’ ships to ship goods from a country elsewhere in Europe to England. This advantage for English traders and manufacturers naturally increased their profits and may have further encouraged innovation in these new and highly profitable activities.

By 1760 the combination of all these factors—improved and new property rights, improved infrastructure, a changed fiscal regime, greater access to finance, and aggressive protection of traders and manufacturers—was beginning to have an effect. After this date, there was a jump in the number of patented inventions, and the great flowering of technological change that was to be at the heart of the Industrial Revolution began to be evident. Innovations took place on many fronts, reflecting the improved institutional environment. One crucial area was power, most famously the transformations in the use of the steam engine that were a result of James Watt’s ideas in the 1760s.