Peter Thiel is not alone in wondering where all the major technological innovations went. From the other end of the political spectrum Chicago professor Robert Gordon wrote a best-seller “The Rise and Fall of American Growth” speculating that U.S. productivity growth is slowing to zero. Yet if you look back, from the Industrial Revolution until at least the 1950s, Britain was the “skunk works” or prototype producer of a high proportion of major technological innovations. Then in 1973, Britain joined the European Union, which appears to have had the same deadening effect on British innovation as the Whig Supremacy of 1714-60. With Brexit, will we see a renewed innovation take-off?
Britain was never very good at mass production. Thomas Newcomen’s “atmospheric engine” dominated steam engine production throughout the 18th Century, yet only 1,200 had been installed by the time it became obsolete, around 1800. Sir Henry Bessemer’s eponymous process for producing steel was first demonstrated in Cheltenham (hometown shout-out!) in 1856, yet by 1900 three quarters of the world’s steel was produced by the U.S. or Germany. The 1938 Lagonda V-12, designed by W.O. Bentley, was by far the finest automobile of its time, yet it had a total production run of 186 vehicles and its producer went repeatedly bankrupt. The de Havilland Comet was the world’s first passenger jet, 5-7 years ahead of the Americans, yet it was too small to be competitive against Boeing’s 707 and it had a tendency to suffer metal fatigue. Thus Boeing (and eventually Airbus, a Gosplan-type construct of the EU) ended up dominating the market.
Other countries have been much better than Britain at various aspects of mass production. For sheer quantity of standardized products, rolled out in a way that had not been thought possible, Ford’s Model T and the U.S. aircraft factories of World War II show that the United States is unparalleled in this regard. It continues to be so, as shown by the successes of Tesla’s “gigafactories” in production of highly specialized large-capacity batteries to power automobiles. For even more intensive production of products at astonishingly low cost, China has in recent years shown itself unparalleled. For spectacular engineering of the very highest quality products in large numbers, Germany reigns supreme, both in its aircraft plants of World War II and its Mercedes and BMW factories more recently. For standardized products of the highest quality, with the utmost efficiency of manufacturing, Japan is the master. In none of these areas has Britain been truly competitive since the earliest days of the Industrial Revolution.
Yet before 1950 at least, dating back perhaps to the Restoration era after 1660, Britain had a unique ability to push forward the frontier of technological innovation, making something truly new, generally later perfected and manufactured in mass quantities by others. This did not often lead to great wealth – Newcomen died a relatively poor man and you would have lost money investing in Lagonda in any of its many incarnations. Nevertheless, Britain’s ability to build prototypes of truly new inventions was a major driver of global technological advance at least until the 1950s, and then seemed to disappear. Even in the 1930s and 1940s, radar, rayon, the jet engine and the first primitive electronic computer were all put together in Britain, even if those inventions’ full development required more manufacturing skill and/or money than Britain could provide.
Britain’s technological inventiveness had fallen back at a previous period: the Whig Supremacy period of one-party rule between 1714 and 1762, a total of 47 years 8 months. The Whigs had begun that period very worried about internal revolt against themselves and the Hanoverian monarchs they served (George I and George II) so had instituted a draconian program of legal and social “reforms” that quieted social discontent, at the cost of severely blocking social mobility.
Consequently the first major steps in the Industrial Revolution, which had been taken in the preceding period – the iron-from-coke process at Coalbrookdale in 1709 and Newcomen’s Atmospheric Engine in 1712, were not followed by further technological progress for over half a century. In both cases, the lack of immediate fame and wealth resulting from the discoveries played a role – neither the Darbys nor Newcomen died rich, even by the standards of the day. Still, in the Newcomen case in particular, where Newcomen engines were installed as mine pumping equipment all over Britain, the lack of further entrepreneurial effort to produce engines that would work in other sectors was remarkable (the Newcomen engine’s motion was too jerky for industrial uses). Only in the 1760s, after the Whig monopoly of government had ended, did the rate of patent filing suddenly double, and technological progress resume at a rapid rate. The Whigs were not an especially cruel government (except to malefactors, through the court system) and living standards did quite well as grain prices remained low, but their repressive rule was not conducive to working class innovation (the middle classes had other opportunities, as I discussed in a previous column).
The European Union, in place as Britain’s effective government for slightly longer than the Whig monopoly – 48 years from January 1973 to January 2021 — appears to have had a similar effect. To be fair, Britain’s inventiveness seems to have died out well before it joined the EU. The 1950s Tory governments’ failure to free the exchange rate or cut the top rates of income tax, their maintenance of many wartime controls, notably exchange control (which lasted until 1979), their destruction of savings through low interest rates and inflation and their hostility to “new men” were all dampening factors. Britain’s automobile industry, for example, was prevented from selling mass-market cars to the U.S. by hopelessly inefficient nationalized steel companies, as well as by unspeakably recalcitrant unions, uncontrolled by 1950s labor laws. At the top of the market, there were no more Lagondas – nobody in Britain could afford them.
Britain’s stifling taxes and exchange controls remained until 1979, then after 1980 they were replaced by increasingly intrusive EU legislation. At the same time, opportunities for intelligent Brits, from whatever social background, were far better in the U.S., where the excessive taxes of the 1970s in particular had driven them or, increasingly, in the oil-rich Middle East or the rapidly emerging Asian dynamos. Consequently, there was no longer the plethora of experimental and prototype technologies being developed in Britain. With higher taxes and far more regulations than other regions of the world, it was hardly to be expected that Britain would be especially innovative.
The result of British technological sluggishness appears to have been a slowing in technological innovation worldwide, particularly since 2000. Vast amounts of venture capital have been thrown at the California tech sector, but the returns in terms of life-changing innovations and improvements have been remarkably meagre. Gordon’s thesis, that the pace of technological change has slowed and is in the process of coming to a standstill seems prescient. Certainly, the attempt by governments worldwide to bloat their spending and to direct innovation into politically attractive “climate change” boondoggles is a major drag. If we all magically drove Teslas tomorrow, at exorbitant cost, we would be no better off than we would be driving Buicks; like most environmentally-driven innovation, the electric automobile is entirely pointless in terms of improving people’s lives.
Britain has now liberated itself from the shackles of EU regulation. Its tax system is at least better than it was in the 1970s, and while its monetary policy is absurd, that has not yet led to 1970s-level inflation. Only the environmentalist curse hangs heavy on Britain’s potential for innovation. Still, Britain’s success in inventing Covid-19 vaccines and in rapidly vaccinating its people, far ahead of the sclerotic EU, suggests that there is hope for something better. The world as a whole must hope that a revival of British innovation does indeed occur, to provide “skunk works” and prototypes for the world’s future.
It is not just a matter of a new V-12 Lagonda – though that would be nice, too!
(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)