EC104 Topic 5 revision

amarjotsidhu's version from 2015-06-09 18:08

Section 1

Question Answer
USA vs Britain - Maddison(Maddison) - USA overtook Britain to become world leader in 1890 (GDP per capita)
USA vs Britain (1870)US relatively developed but still behind UK ; % employment in agriculture - UK (nearly 25%) vs USA (50%); Britain has higher HDI; US 30% richer than Germany
Consequence of early British development (1870)As Britain had moved so much of its workforce into the tertiary sector already, there as limited scope for productivity gains to be made from transferring labour to tertiary sector
South vs North USA (19th century)North = immigrant based, industrialising, inward looking = low levels of trade; South = slave based "plantation economy", not industrialising, outward looking - higher levels of trade
US Civil War (1861-65) impact on Southincomes in the South fell relative to those in the north; this was due to demand shocks (south dependent on cotton, lower demand for cotton post war) + supply shocks (slaves had previously been overworked, post war -> input fell by 1/3)
Homestead Act1862 - free land given to those who needed it; children of existing farmers, who had the capital and skills to make farming went West
Limitations of the Homestead Actwhile land under the act was 'free', farmers still had to buy seeds, equipment and live for 1 year while crop was growing = around $1000 -> you needed capital so only existing experienced farming families went; people rarely accepted free land, preferring to pay a small fee/per acre to the railway company for land closer to the railway lines (lower transportation costs)
Wage consequences of Homestead Actchildren of farmers went West -> wages in cities remained high (limited labour supply) -> high wages attracted immigrants = free land did help immigrants (immigrants took locals' place in cities)
Migrant flows 1820-192060% of European migrants went to the US (out of 55 million)
Nature of migrants to US from Europeimmigration self selected those who had the most to gain and give = young adult men; migrants were more labour productive than the economy they had left and the one they joined; skilled immigrants = technology transfer from old to new world
Consequences of immigration to the US (1820-1920)skilled migrants represented technical transfer; they helped to lower the age structure of the population; provided a 'free' boost to the population (benefit of extra Labour without any of the raising and educating costs)
Relationship between rate of immigration to the US and Europerate of immigration to the US depended partly on Europe's ability to absorb US imports and partly on Britain's ability to lend to the US (capital mobility helped US absorb more labour); 'golden era' of British international involvement in trade provided major boost to US
Britain and US immigration 1820-1920Without Britain;s willingness to transfer capital to the US, migration would have been much more limited
Baines on relationship between Britain and US immigrationhigh propensity to import in Britain in this period = crucial for US growth and their ability to maintain a high level of income despite high immigration
Hatton and Williamson on capital transfers to USUS experienced faster capital deepening than any European country between 1870 and 1913
British vs. American tariffs (1860-1914)British = 0 ; American = 33%
Consequences of high American tariffs (1860-1914)high tariffs = exclusionary -> even the most efficient foreigner couldn't sell to US; American manufacturers could survive even though they were inefficient = they could develop; domestic consumers forced to buy dearer home produced goods
Why were US goods more costly? (1860-1914)inexperience of American manufacturers; higher wages; also, goods were of lower quality than Britain's
Why did the prices of US goods decline over time?manufacturers became experienced over time; higher wages mattered less as firms became better at producing with fewer workers + via substituion of capital for labour + high levels of immigration

Section 2

Question Answer
What are factor endowments?naturally occurring conditions and resources that a country faces - stuff a country already has; factor endowments in our focus = those that influence labour and resources
Acemoglu on role of mortality environmentmortality environment determines the type of institutions which in turns affects economic development; if a country has hostile diseases = Europeans did not settle but just 'extracted' (used slaves, etc. to get resources); if conditions better= Europeans stayed and created better resources = these conditions paved the way for the type of institutions in Africa vs USA ; institutions = historical mechanism + mortality environment = key
Rothbarth Habakkuk thesisEconomies economise on what is scarce as scarce factors = expensive; America = labour scarce = expensive (esp. skilled) [due to move West of locals = labour shortage in cities] -> US very well endowed with raw materials ->US uses less labour and more raw materials to produce any particular good + can waste raw materials in process; in the production function Q=f(K, L, R) , R and K are cheaper = used more to economise on labour = US went on to adopt K intensive modes of production (American system of manufactures'
Britain vs US apprenticeships (Rothbarth-Habakkuk) 15% of UK engineering employment in apprentices vs. 3% in the US
US vs Britain raw material scarcityRaw materials were much scarcer in Britain e.g. UK only had 25% of the coal of the US = it had to conserve such resources
Nelson and Wright on institutions and US factor endowmentsbenefit of US factor endowments enhanced by positive role played by US institutions
US factor endowment success down to advances in exploration, training and technologies of extraction, refining and utilitsation
Wright on innovation in USpositive nationalistic approach to R&D and subsequent innovation in the USA
'Collective invention'(Allen) - a culture that is created to allow the US to make the best of its resources; innovations not patentable; firms involved in gradual learning which is openly disseminated + strong incentives for firms given the scale of the domestic market
Contrast to US factor endowment successAll about using resources effectively e.g. Russia has so many but does not perform well economically
American mineral developmentEven early C20 resources based development not low-tech = world leadership in mineral production NOT based on geological endowment; USA mineral production in 1913 far exceeded the proportion of mineral reserves
Developing America's mineral potential down to decades of investment in: exploration, transportation, knowledge infrastructure of mineral deposits, training miners and geologists, metallurgical revolutions = expansion of range of minerals that could be profitably extracted ; state funded geological surveys (field work and report publication supported)
America's successFactor endowments + institutions

Section 3

Question Answer
Modernisation of US economymid to late C19; high output techniques employed at beginning of C20
Production/managerial revolutions1920s - 1960s
Types of growth in C20 USIntensive growth (mass production, American System of Manufacturers, managerialism) + extensive growth (usage of increasing amount of resources, mass migration creates additional labour -> and so higher levels of demand)
Productivity growth (1869-1910) - US vs UK vs GermanyUS = 125% ; UK = 115% ; Germany = 70% (US productivity levels haven't surged ahead of Britain yet)
American growth pre WWImodern manufacturing = exception, not rule; most production still small scale, unaffected by managerial techniques; average employees per US plant rising = extensive growth (adding resources and labour - abundant)
American system of manufacturingStart of US technological revolution (from 1850) ; use of standardised, interchangeable parts in fierarms, clocks, sewing machines = volume production ; parts could be used on a variety of machines -> didn't have to be custom made
Colt revolverassembly line factory started in 1836; failed at first; war with Mexico required more guns and company re-emerged; interchangeable parts = maintenance and repairs of the gun easier
Singer Sewing Machine1857 - mass production facility made; profit margins increase by 500%; standard parts = faster productiion + less skilled workers perform jobs (specialisation) = lower costs and smaller number of workers (Rothbarth-Habakkuk);
Mass productionassembly line; standardisation of products ; specialisation of tasks
T Fordafter mass production introduced, production time for a new car declined from several hours to one every 23 minutes; cost goes from $3,600
Mass marketmass production encouraged my mass market; ideal mass market -> people wanted to have what other people had (homogenous)
Managerialism (Chandler)building of managerial hierarchies clustered in a set of industries where need for co-ordination = high (Chandlerian industries); technology and developments in mass production = scope for mass production
Rise in modern management techniquesrise of trained managers
Technological gains in this periodtelegraphs then telephones; typewriters; basic calculating machines

Section 4

Question Answer
Situation by 1914USA had forged ahead; 2:1 lead in the productivity of industry vs. Britain (next closest rival); richer and bigger
US spinning method vs BritainUS = Ring spinning = less skilled labour, more capital, more wasted resources (cotton) vs Britain = mule spinning method = lots of skilled labour, less capital and less resources
Reasons by British kept Mule spinningRing produces much lower quality, cheaper, thicker cotton which was demanded by US marked while Mule was higher quality, demanded by gentleman capitalists; Britain exported most of the cloth it produced all over the world so Britain faced more heterogenous markets ; US machinery not cost minimising in Britain = British producers were rational, given factor prices and demand conditons to keep Mule method
British lead in ship building industry (1890)1890 - Britain accounted for 80% of world output
British lead in ship building indistry (reasons)failure of the US to overtake Britain = craft based flexible production system in Britain (lots of high skilled labour); need for economisation of fixed capital given highly cyclical nature of industry (you can just hire/fire workers but you are stuck with physical capital)-> Britain could economise on fixed capital as it was human (as it primarily used skilled labour) while fixed capital in US was physical; many skilled British workers worked both in shipyards and domestic trades on land vs. idle machinery in US
Productivity in shipbuildingBritish lead till WWI; once mass production techniques employed in US (1950s), US took over Britain
British craft based production approachshows that latest technology isn't necessarily best for all economies
US productivity gains in WWIIBefore war, ship took 230 days to build; 2 months before end of war, it took 4 days and 15 hours vs. 2 months for Britain
Success of US industry (demand)US consumers prepared to accept higher degree of standardisation, facing US producers with a more homogenous market
Success of US industry (Supply)shortage of skilled labour = substitution of machinery for skilled labour while abundanct resources = resource-using technology
US success or British failure?US success
Factors for US successfactor endowments more favourable in US; institutions (geological surveys, etc. ) ; tariffs, interchangeable part success; managerial capitalism; mass market
US techniques in Europewould not have worked - mass production and high throughput technology would not have worked ; labour cheaper in Europe and was more skilled vs. capital was more expensive + European demand more heterogenous
David & Wright on natural resource abundancedoes not just reflect geological endowment of mineral deposits but a constructed condition down to extraction and refinement technologies, market development, transportation investments and legal/political structures
David & Wright on failures of Russia to use its vast coal and iron resources welldown to inconvenient location of major deposits thousands of miles from population centres
David & Wright on collective enterprise in USprovision of geological information via state funded surveys = most important step in collective enterprise of resource discovery
David & Wright on strong American ethosethos of exploration = belief that major mineral discoveries could still be made and that scientific + technological infrastructure should be built to support exploration = positive attitude
Hatton and Williamson on causes of emigrationrising domestic incomes = increase emigration rate by allowing people to finance move; demographic effect = more people in prime emigration age group + lowering of domestic wage = higher emigration
Atack et al. on role of railroadsrailroad played a quantitatively significant role in the growth of urbanisation in the American midwest around the middle of the 19th century; they may also account for more than half of the increased urbanisation in in the midwest during 1850s
Banes on consequences of high unskilled immigration into the US in late 19th/early 20th centuryimmigrants made it easier for technological change to occur and as technological changes did occur, it became easier for immigrants to enter bottom of industrial labour market = heavy immigration both a cause and consequence of changes
Chandler on US managerial techniquesUS had better organisational capacity through use of managers, exploited technology for economies of scale and scope
Magee on US capital use vs. BritainUS manufacturing 90% more capital intensive than Britain by 1900
Energman and Sockoloff on US geographyUS had low mortality environment, temperate arable agriculture