Home PEOPLE History suggests Australia could be left behind by the next industrial revolution
History suggests Australia could be left behind by the next industrial revolution

History suggests Australia could be left behind by the next industrial revolution


The Conversation By Warwick Smith and Mitchell Eddy

When the industrial revolution hit in the 1800s, countries with large disparities in wealth, low property ownership, deficient democracies and disparate education systems were left behind.

There’s a new industrial revolution just around the corner, driven by artificial intelligence and robotics. Deterioration within the key institutions of suffrage, education, and land policy indicate that Australia may be one of the countries left behind this time.

The first millennium

One way to anticipate the future is to look to the past.

British economist Angus Maddison has estimated that in the year 0, the population of Western Europe was 24.7 million. 1,000 years later it was 25.4 million – an increase of just 700,000. Total global population increased by only 37.3 million in a millennium. If we had continued at this pace, in 2015 there would have been 312 million people on Earth.

Gross domestic product fared even worse than population. Between the year 0 and 1,000, GDP per capita was stagnant or fell across all of Maddison’s seven global zones.

Over the next 800 years, the pace quickened (a little). World population quadrupled to crack the billion for the first time. By 1819, the Eastern European population of 91.2 million generated some $60.9 billion worth of stuff (1990 International $) or $665 per person.

Then in 1820 everything changed.

Well, sort of.

Fuelled by a potent mix of technology, ideas, appropriated resources and a distressing number of slaves, the Great European powers began to make themselves Great. Certain colonies prospered as well. Countries like the United States and Australia increased their output markedly, quickly distancing themselves from some of the other colonies.

There are two key explanations for the changing fortunes of different colonies: factor endowments and institutions (or some combination of the two).

In Guns, Germs and Steel Jared Diamond proposed a particularly entertaining version of the former, where the ability to grow nutritious grains, the presence of draft animals and immunity-inducing epidemics saw Europe come to dominate the world.

Others have argued that, while factor endowments were important, it was the institutions that they gave rise to that really made the difference. With a focus on entrepreneurship and property rights, MIT professor Daron Acemoglu and his colleagues have argued that the presence of disease in certain colonies led to the development of “extractive” economies. Low settlement rates saw a small group of elites seek to concentrate power, appropriating as much wealth as possible and exporting resources back home.

Conversely, places without tropical diseases became “settler colonies”. When Europeans settled these places, the institutional arrangements there mimicked those of the home country. Land and livestock were privately owned by new migrants, which incentivised increases in productivity. Once the industrial revolution came to town, these colonies dramatically increased their output.

Without the hope of social mobility or the pressure of competition, extractive economies failed to take advantage of new opportunities and were left standing at the station while the Industrial Revolution brought wealth to the rest of the world.

While the “private property prescription” is a temptingly simple answer, evidence suggests that a more crucial factor appears to be whether a country developed institutions with a broad franchise (read: equality and equal opportunity) or narrow franchise (inequality and lack of social mobility). Private property certainly has a role to play, but only as part of a wider suite of institutional arrangements.

In Australia, land policy was designed to encourage new migrants and sought to break down the system of class privilege that calcified Mother England. Country lands were sold for as little as £1 per acre, payable over time, and acreages were limited to prevent large holdings.

Australian PMI: Manufacturing enters 2017 on the up


The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) increased by 1.2 points to 55.4 in December, finishing 2016 with a solid expansion (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Six of the seven sub-indexes in the Australian PMI improved from November, headed by a surge in exports (up 12.6 points to 68.5) and strong expansions in new orders (up 1.1 points to 60.6) and sales (up 5.3 points to 58.8). Employment slipped in December (down 4.9 points to 47.4), in line with recently weaker jobs growth.

Five of the eight manufacturing sub-sectors expanded in December (that is, above 50 points in three-month moving averages), with food and beverages (up 0.6 points to 57.1) and petroleum & chemical products (down 0.6 points to 56.5) continuing to perform solidly. Machinery & equipment (up 0.1 points to 55.0) is showing signs of continued resilience, while non-metallic mineral products bounced back to expansionary conditions (up 7.1 points to 57.9).

“Despite a small fall in sector-wide employment in December, manufacturing production, sales, exports, and new orders all grew strongly in the month, providing a running start to the new year,” said Ai Group Chief Executive Innes Willox. “Four of the five larger manufacturing sub-sectors – food & beverages; petroleum, coal, chemicals & rubber products; non-metallic mineral products; and machinery and equipment – saw healthy growth while the metal products sub-sector closed a difficult year in the red.”

Input prices remained elevated in December (up 0.3 points to 62.8) while the selling prices sub-index fell 6.1 points to a contractionary 45.4, indicating a continued tightening of margins for manufacturers heading into 2017. The wages sub-index of the Australian PMI increased significantly (up 8.5 points to 62.3), perhaps heralding an early 2017 pick-up in manufacturing wages growth.

“The positive result for producers of machinery & equipment comes despite the steading unwinding of automotive assembly and points to a tentative pick-up in business investment,” Willox added. “Early passage of the Government’s Enterprise Tax Plan would provide momentum and an important boost to activity.”


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