14: Social Consequences
While the industrial revolution was driven by the expansion of knowledge, unskilled labor reaped more gains than any other group. From 1760 to 1860 in England, the wages of the working class grew far more steeply than the income of the capitalists and landowners. Contrary to Marx's theory and the gloomy dystopias painted by fiction writers of the time, the result of industrialization has been a benefit to the most disadvantaged groups, right from the start.
Sharing the Spoils
In general, productivity increases in modern economies provide more output per share or labor, land, and capital expended - but this is not to say that the spoils are shared proportionally to the contribution of these factors. Ricardo predicted that an increase in income would result in greater profits to landowners and capitalists, but the actual division of the spoils in England "could hardly have been more different."
In the long run, landowners received none of the gains of industrialization. The rent paid of farmland peaked in the late nineteenth century and have declined ever since. The nominal price of rent increased, but when compared to the costs of goods it is found that in the present day, the amount of rent for an acre of land buys no more goods than it did in 1760. In all, the real earnings of land were higher in the thirteenth century than they are in the present day.
As farmland rents declined, urban rents increased, and there is a great disparity in the present day between the rent of an acre of farmland (about 3,000 pounds) and the rent of an acre of unimproved land in an urban center (263,000 pounds) - however, there is a far smaller proportion of premium land.
Capitalists also received no net gains from growth. The net profit of capital is just the real interest rate - and if anything, interest rates on loans have declined since the industrial revolution. Total payments to capital have expanded enormously, but only because the stock of capital has grown rapidly and seems to be indefinitely expandable - but in terms of the return provided on capital employed in production, it has decreased.
This, all of the efficiency gains of industrialization have shown up as wage increases, as labor has consumed a disproportionate share (in fact, virtually all) of the benefits of industrialization. And on more detailed examination, it can be found that the wages for unskilled workers has advanced at a much more rapid pace than the wages of skilled workers, which holds in all advanced economies: the wage for a skilled building worker was double that of an unskilled worker in the thirteenth century, whereas it is presently figured at about 25%.
Another trend is the narrowing gap between men's and women's wages. In the preindustrial era, unskilled women earned 50% as much as men, whereas in the modern world it is estimated at 80%. There was also far greater prejudice at that time against training women to become skilled laborers, and far less resistance to hiring them as "brute laborers" in agriculture and the building trades. The industrial revolution improved the lot of women by shifting the emphasis of production from trades requiring brute strength to those which valued manual dexterity - both in terms of the number and nature of occupations.
Income Inequality
There is "an enormous amount of literature" debating whether industrialization causes or mitigates inequality in income - which largely depends of which data are being used as a point of comparison. However, the growth of wages and the decreasing skill premium suggest that rising inequality was unlikely. Compared to Malthusian economies, industrial economies demonstrate less inequality of income.
In all societies, the distribution of capital and land tends to be highly unequal - relatively few members of society hold these factors, and he remainder has no material wealth - whereas the distribution of labor tend to be generally equal. Aside of the relatively minor variances in the skill and physical abilities, able-bodied workers are capable of giving the same amount of labor to any undertaking.
The author presents a data table on wages and wealth, in 2003-2004, and a second table that provides similar analysis for preindustrial societies - and the conclusion they suggest is that there was much greater inequality in the preindustrial world than in the postindustrial one. A similar comparison is made comparing the earnings in England in 1770, 1850, and the present day.
Inequality in Life Prospects
Material outcomes (income and wealth) are not the sole determinant of quality of life. Life expectancy, health, number of children, and literacy are also considerations - and on all of these dimensions, the gap between the rich and poor has narrowed considerably since industrialization.
The author consider four factors, in the preindustrial and modern economies:
- Stature - 3% before industrialization, 1% afterward
- Life Expectancy - 18% before, 9% afterward
- Surviving Children - 99% before, -19% afterward
- Literacy - 183% before, 14% after
There are still disparities: the rich are a little taller, live longer, and are more literate than the poor, but by far smaller proportions; and the poorest are now out-breeding the rich.
Why Did Landowners Not Receive the Gains?
Given that there was an increased population and an increased demand for land, why did landowners not benefit from the industrial revolution, as some economists (chiefly Ricardo) predicted?
One reason is that the income elasticity of demand for many land-intensive products is low: higher wages do not necessarily mean that people will purchase more food. As income increases, it is spent on other things.
Also, industrialization mechanized many strenuous tasks, which meant more work is done with less labor, which meant a decreased need for nourishment. As an example, consider that the average male in the United States presently consumes about 2700 calories and grows rather fat on that diet, whereas it is estimated that the average British laborer in the 1860s consumed a diet of 4500 calories and did not gain weight (in spite of smaller physical stature).
Consider, too, that beasts of burden also consumed grains, and as coal and oil replaced horses and mules, farmland devoted to the production of feed could be redirected to feed the human population. Horses were "an early casualty of industrialization" and their population plummeted.
Another contributing factor was that agriculture became more productive, producing greater yields from a smaller amount of land. It is estimated that wheat yielded 5 bushels per acre in medieval England, which increased to about 20 by the late nineteenth century, and 83 today (with some areas reporting up to 150).
As a result of all these factors, it turned out that it required less land, rather than more, to feed the growing population, reducing the demand, hence the price, for land.
Technological Advance and Unskilled Wages
We generally consider industrialization to mean the replacement of human labor by machine labor - but we find this is not so. Even in the present day, we find many unskilled laborers flooding into developed economies (Mexicans into the US, Eastern Europeans into the UK) to fill a growing need for unskilled labor for which those economies offer enormous rewards for undertaking the risk of crossing borders illegally.
At first, the author looks to beasts of burden again - as many of the tasks that industrializations mechanized did not replace workers, but livestock. The steam tractor did not replace scores of men who were manually plowing fields - it replaced a team of oxen - nor did the locomotive displace legions of human porters. The same can be said for many of the "jobs" eliminated by industrialization.
It's also worth considering that "unskilled" labor is not unintelligent or inattentive labor: neither a beast nor a machine can replace a human worker in cleaning a hotel room, cooking a hamburger, painting a fence, bagging groceries, or many other tasks that are generally considered to require no skill. In other instances, human labor is still considerably cheaper than the cost of purchasing and maintaining complex machinery, so the ideal of a fully mechanized warehouse has not materialized to a significant degree.
It is, perhaps, ironic that technology in the form of computers is more adept at replacing what we once considered the higher cognitive functions: they calculate numbers, make perfect copies of documents, even calculate engineering stresses, each of which replaces skilled workers. Another ability of humans that technology has failed to supplant is the ability to interact with other people - to communicate effectively, read their moods, and adapt. In particular, sales and service are critical competencies in the modern marketplace, and the means to an advantage in competitive marketplaces - and in these areas, machines are far inferior.
The past may not be a guide to the future, as the author concedes that computers are becoming better and cheaper, and there is the threat that they will eventually be able to assess and react with a high enough accuracy to replace humans, at a cost low enough to make it feasible.
Back to the main thrust: another reason unskilled labor pays a high wage in industrialized economies is that the population there is dwindling. Those in advanced economies are reproducing less than those in undeveloped ones, and it is now predicted that, as the world continues to industrialize, the population will shrink rather than growing. It is only for the present time that we see disparity between wealthy and poor nations, and the high reward offered to labor is a means to offset that balance.
The Demographic Transition
During the Malthusian era, population was a critical determinant of prosperity, because land was a fixed factor and resources were scarce. In the modern world, there are some rare instances in which a larger population means decreased prosperity, but in societies such as England and the US, the gross population is irrelevant.
Trotting out the population statistics again: in pre-industrial England, women would give birth to five or six children, only two of which would grow to adulthood. In the present day, women of England give birth to less than two children, not sufficient to replace the population. But between the beginning of the industrial era and the early twentieth century, there was a period during which women were still having many children, and most of them were surviving to adulthood: this caused quite a population explosion.
Some explain this as being demonstrative of prosperity: even in preindustrial England, the wealthy segments of societies more closely matched modern society: fewer births and lower child mortality. As such, there is an apparent link between fertility and prosperity. The trend of the working-class "professional" having a smaller family that the rural agricultural worker was noticed as early as the late nineteenth century.
An interesting perspective (Beckham): if people with more wealth have fewer children, this implies that children are "inferior goods" in economic terms - much as wealthier people choose to eat less spam, they also choose to raise fewer children.
It would seem that as people had more money they could afford more children - but there is another commodity that children consume: time. As incomes have risen, the amount of time people have has become less, and it also holds that the higher a person's income is, the more time he must spend in professional pursuits - not just time on the job, but time in preparation (getting a college degree means waiting to start a family). In other instances, the choice to have fewer children is consciously made with the intent of providing a higher quality of life to a fewer number of children.
This leads to the suggestion that the wealthy people of the preindustrial world might have wanted fewer children, but lacked the means to avoid having them (effective contraception). However, statistics do not bear that out - the decline in fertility occurred well before the modern era, even without advanced methods of contraception.
Another suggestion is that the desired number of children per married couple is actually independent of income: that we have an unexplained and perhaps instinctive preference to have only two children to replace their parents, but to achieve that end result in a high-mortality culture required having five or more that two might survive. (EN: The author doesn't dismiss this, but it seems patently ridiculous.)
Another theory deals with the increasing social power of women that occurred, incrementally, though the industrial era, which gave women greater status - conferring the ability to negotiate the number of children they would bear, and giving them the ability to seek pursuits other than bearing and raising children.
Why Did Owners of Capital Not Gain More?
The author used interest rates to demonstrate that the return on capital investments has decreased, rather than increased, as a result of industrialization, and stands by that remark. Capital used in industrial production exceeds the interest rate for lending, but the two are interconnected: where production yields a higher return, borrowers can offer more for loan of capital, which will drive interest rates upward. As such, even in the absence of hard numbers about the profit of production, the low and decreasing rate of interest is indicative of a low and decreasing rate of capital return.
In general, the profit on capital is limited by competition - when one firm makes an exorbitant profit, others rush in to underpriced, until the price of goods is normalized at a low level of profit - which is to say, a subsistence level that's just enough to cover the costs and provide enough of a return that a sufficient investors don't pull out their capital and invest it elsewhere.
There is a bit of a diversion into the cotton industry, which boomed in England: there were about 2,000 firms involved in spinning and weaving, and 40% of the world's output of cotton goods was produced within thirty miles of Manchester. One of the greatest cotton magnates, Richard Arkwright, amassed half a million pounds - but by contrast, consider that his son sold off the cotton business, invested in bonds and real estate, and increased the family fortune to over three million pounds. Also consider another magnate in pottery, an industry that benefitted not at all from industrialization, amassed just as great a fortune as Arkwright. The point being: the textile industry did not offer above-average profit because of the competitive nature of the industry.
It's noted that the industrial revolution in Britain did not result in a significant number of great personal or family fortunes, as it did in the United States some years later. Those who had wealth in Britain were still, by and large, the descendants of the aristocracy. Considering the wills of the wealthy individuals (net worth over 500,000 pounds) between 1860 and 1879, 68% of them had wealth in land and only 4% were textile magnates, despite the textile industry's boom in that era,.
It is ultimately suggested that the greatest benefactors of the industrial revolution were consumers, who had a rising level of income, a decreasing cost of living, and a wealth of goods at their disposal.