Chapter 6: Why China Failed to Industrialize
There are several reasons why industrialization is an absolute necessity for modern economic growth. First, there is a specialization limit to growth in the traditional agricultural economy since, as mentioned earlier, Smithian growth is based on the division of labour. Unlike modern industry, there is a limit to vertical disintegration of the production process and hence division of labour in agriculture, as discussed before. Second, there is a biological limitation to growth in an agrarian economy which uses land as its main production factor. According to Wrigley (1988) and Landes (1969), agrarian economies are organic because they largely rely on plants for their raw materials and main sources of energy. And human and animal power, the traditional sources of their energy, rely on the supply of food which in the long run is constrained by the fixed production factor of land. Thus growth and productivity are limited, and once the land cannot be expanded diminishing returns set in and the traditional economy stagnates. In contrast, an industrial economy relies on stored energy in the form of fossil fuels. Through the development of the engine which converts heat into work, fossil fuels provide a not entirely unlimited but nevertheless huge supply of energy which largely replaces the need for human and animal sources of power. Furthermore, the fossil fuels also provide an unlimited supply of mineral raw materials. Thus land as a fixed factor of production no longer restricts growth. In view of the importance of industry to sustained economic growth,...
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