Monday, April 25, 2016

Why Did the Industrial Revolution Occur in the United States and Not in China?

Here is something for the anti-IPers to contemplate.

William N. Goetzmann, the Edwin J. Beinecke Professor of Finance and Management Studies & Director of the International Center for Finance at the Yale School of Management, writes in his new book, Money Changes Everything: How Finance Made Civilization Possible:
The sheer volume and detail of Chinese scientific and technical knowledge from the centuries before direct contact with Europe makes it virtually impossible to argue that Western societies were the world's sole source of light and truth...Indeed, as evidence of Chinese scientific knowledge continued to grow with each published volume of the series [Science and Civilization in China], [Joseph] Needham himself began to wonder why the Industrial Revolution took place in Europe rather than China...

One simple answer is chance...Another is the sustained success of Chinese civilization...another particularly radical idea--geographical determinism...

What all these explanations ignore is the supporting role of finance in technological development. Technology requires genius, but it also requires capital. Railroads need financing to build tracks and rolling stock, However, if successful, these investments can pay for themselves. Entrepreneurs need motivation to keep experimenting when their peers are working at steady jobs--patents and legal protection allow the former to capitalize on their innovations. If an entrepreneur faces state expropriation of his or her innovation, it makes little sense to invest the human capital required. Capital markets and the protection of intellectual property rights can serve as cofactors in sustaining entrepreneurial motivation and capital investment. Whilt the centralized Chinese government had the capacity to reward individuals for creating new technologies, it typically did not simply allow the market financing for new ideas.




-RW 

12 comments:

  1. The story I heard is they didn't have easy access to coal. England did. Without coal you can't run a steam engine.

    Makes more sense that any IP argument.

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    1. I am sure there are many reasons why China's IR didn't develop until after Europe's. But I agree IP is no reason at all. Its amusing that RW is correctly opposed to tariffs for being nothing more than theft. But when they are moved from the international stage to his own backyard of so-called IP they suddenly become ethical. I am not familiar with Prof. Goetzmann but I bet he believes the tariffs imposed by the US in the late 1800's are the reason for the US success in the IR. Its amazing how the human mind can rationalize when its own livelihood is at stake. The best way to profit from your ideas is to take action. Turn these ideas into products and services and beat the competition with alertness to market needs. Not easy but the only ethical way to go.

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  2. nothing to with ip. More to do with war (lack of) and freedom.

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  3. While they're at it, maybe the Chinese state should have built some roads and printed some money.

    Every business enterprise has security vulnerabilities and steps it has to take to mitigate them. Keeping valuable secrets secure is one of them. Government enforcement of IP is just one more distorting government intervention that skews economic calculation and prods people to behave in ways they otherwise would not.

    It is not your neighbor's responsibility to lock your front door.

    The enforcement of IP eventually devolves to just one more crony-capitalist pay-to-play scheme.

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  4. ─ Needham himself began to wonder why the Industrial Revolution took place in Europe rather than China ─

    China had several industrial revolutions. So did Europe. The Medieval Industrial Revolution comes to mind as one of the most famous. The Chinese were able to smelt iron. The Europeans did not have such technology until the 1700's.

    ─ Entrepreneurs need motivation to keep experimenting when their peers are working at steady jobs -- patents and legal protection allow the former to capitalize on their innovations. ─

    I don't understand what the author is implying here. Is he arguing that the Chinese did not innovate fast enough because of a lack of patents? That sounds insanely absurd to me, considering that most innovations the Europeans relied on to increase their dominion over commerce came from China, which means there wasn't a lack of encouragement.

    ─ If an entrepreneur faces state expropriation of his or her innovation, it makes little sense to invest the human capital required. ─

    Wait a second - what is he talking about? If by EXPROPRIATION he means the State appropriating exclusive rights over a technological improvement or invention, then that is COMPLETELY different than having a mere lack of patents.

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  5. The real explanation of course is that there wasn't a free market private property system with clear rules and expectations that would cause entrepreneurs to invest. There also wasn't nearly the same capitalist culture (in law and in cultural practice) that allowed a commoner to save, acquire property, and then capitalize on it.

    There is a cultural reason it arose in the West, starting in the Netherlands (per Gary North), who built off ideas formed in the Middle Ages (per Murray Rothbard).

    The State having IP laws is a laugher of a reason.

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  6. Seems pretty obvious that people are not going to dump millions of dollars (in today's market) investing in things that can just be copied for free. People also aren't generally going to spend years working on an invention where there is no reward -- or if they do because they just really enjoy the process, they are going to be less likely to share the results.

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    1. And without state subsidized roads people would be less inclined to invest in cars. Without bailouts banks would be less likely to give risky loans. Without the nearby army outpost, American settlers would have been less inclined to encroach on Indian lands. So what?

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    2. but IP (the current system) is just the infant industry protection on a an individual scale. the ip protection should be whats noted in the contract.

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    3. Pro-IP premise: Humans will only be productive if they know they can use a gun to stop other people from also being productive. In other words, the possibility of competition discourages productivity.

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  7. Long Answer - How the merchant class was viewed by society

    Short Answer - Christianity

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