3. The birth of productivity growth
When did the economy start to grow? How did a nation of farmers become a nation of shopkeepers — and bankers, engineers and software programmers? What changed to move us from the survival economy of the middle ages to the industrial revolution and the riches of today?
The answer begins, I think, during the reign of Elizabeth I, and it begins on the land. After centuries of producing roughly the same from the land each year — give or take the occasional famine — the Elizabethans began producing just a little extra. The 1500s set in train a slow, steady process of agricultural productivity growth which has continued ever since and has made us rich beyond the wildest dreams of even a medieval queen.
What does productivity mean? It is, simply, the amount we produce given a certain level of input. Normally, we measure the productivity of our labour — how much we produce per hour we work. Labour productivity is the single most important factor that determines our prosperity, and probably the most important concept in economics. If we want to be paid a decent wage, and we want that wage to be able to buy stuff, we need to produce enough to sustain it. The more we produce for every hour we work, the richer we get, all things being equal. When productivity growth slows down — as it has done across the western world over the last decade — wages slow down with it, with all of the challenges that brings.
But in the 1500s, it is the productivity of the land — the amount produced per acre — that changed first. Agricultural productivity began to grow such that, by the year 1600, the average English acre was producing twice as much as in 1500. By 1850, the land was producing five times as much. This increase in land productivity is sometimes known as the British Agricultural Revolution. It was vital, because the economy was dominated by land, and because there is only ever a fixed amount of land available. You can see this shift in the graphic below, going all the way back to 1270. Productivity per acre is in purple and productivity per person in red*.
This increase in land productivity did not immediately make people any better off. In fact, it was not until around 1660, over a century later, that there was any noticeable increase in GDP per capita. What happened instead, at first, was that the extra food helped the population to grow; it recovered to its pre-Black Death peak early in the 1600s and crossed 5 million for the first time in the 1630s. Just as the Black Death made everyone who survived it better off, this population growth initially consumed the extra production from the land. The graphic below shows just how the population changed.
But this mix of population growth and more productive land had important knock-on effects. It created, in effect, a surplus of people who weren’t all needed to work the land. These people were freed up (or perhaps more accurately, forced) to find something else productive to do other than work the land. Many of them eventually moved to cities and took up work manufacturing things or in service industries, playing a central role in the Industrial Revolution (which we will of course return to in future editions of this blog). The journey to rapid economic growth and improved living standards for everyone was a slow one, but this first bit of productivity growth on the land was vital. Before it, the economy was constrained by the limits of the land; afterwards, it was able to expand almost without limit.
So where did this productivity growth come from? How did people begin to produce more from the same land? There is, I’m afraid, no single, satisfying answer. It is complicated, and there are several different factors.
First, the land in England began to be enclosed through the 1500s, with the common land village farms increasingly turned into private farms. This typically meant larger farms, which could be more productive. It also provided an incentive for farmers to improve their output because they could be sure to keep more of it.
Second, the feudal system had given way to a more market-based system, where farmers generally paid their dues to their landlords in cash rather than by labour or a share of the produce. In some cases, farmers were able to buy their land outright. Again, this increased the incentive for farmers to innovate and increase their earnings from the land.
Third, there were improvements in how the land was managed. The Norfolk four-course rotation system, invented in Belgium and spread through England in the 1600s and 1700s, meant farmers no longer left a field fallow, as they had under the older medieval crop rotation systems. Improved drainage systems brought over by engineers from the Netherlands also helped to drain many marshland areas, such as the Fens and the Somerset levels, bringing them into more productive use.
Fourth, new technologies — including Dutch ploughs, Jethro Tull’s seed drill and later the development of fertilisers — enabled agricultural productivity to really take off, particularly later on in the 1700s and 1800s.
The dynamics of the agricultural revolution are complicated, and I won’t take up any more of your time with them here, but they give us a good insight into what makes economic progress happen. It does not happen overnight; the changes I’ve described took place gradually over 350 years. The key ideas are often borrowed — sometimes from overseas — and need to spread across the economy to take full effect. And it is born of many different forces — not just technology, not just entrepreneurship, not just large investments of capital, but all of these factors working together and driving one another.
In a sense, this is what the economy is — it’s about how all the different parts — labour, captial, ideas, land — fit together. What changed in the 1500s was that the pieces began to fit together a little better, so that people took the same set of inputs and began to produce a little more with them each year. In Britain, we’ve managed to become a little bit more productive almost every decade ever since. This productivity growth remains the foundation of our prosperity, and we should not take it for granted. We will explore each of the main components of productivity in more detail in future as this blog heads towards the industrial revolution.
* This graph uses the Total Agricultural Output index in Broadberry et al., and divides by arable acreage and population. Both have been indexed so they equal 100 in 1270 for ease of comparison. Dividing total agricultural output by arable acreage isn’t ideal, but I don’t think it substantively changes the story in the data.
The data here is sourced from the Bank of England “Millennium of Macro” dataset. In particular, the agricultural data is drawn from Broadberry, Stephen, Bruce M.S. Campbell, Alexander Klein, Mark Overton and Bas van Leeuwen (2015), British Economic Growth, 1270–1870, Cambridge: Cambridge University Press http://www.cambridge.org/gb/academic/subjects/history/economic-history/british-economic-growth-12701870?format=PB