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Study notes for EC104: topic 7
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Study notes for topic 7: the 2nd IR and rise of the USA. From lectures and seminars
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The 2nd IR and rise of the USAThe 2nd IR
● Was directed technical change in the 1st and 2nd IRs but the change differs
according to the different resources in different locations
● USA mainly had a trade surplus (1874-1971)
○ Their share of global trade x2 (6% to 11% from 1868-1910)
● Increased steel production (4.3 million tonnes) in 1900s
○ Rails, locomotives, bridges
○ Important export to Russia
○ Produced more steel than Britain and Germany by 1902
● Didn’t just produce consumer goods - output of 20m barrels of oil in 1896
New market organisation (LeFeber 1993)
● MNCs are better at attracting investment and gaining political help, increasing
the market share at home and abroad
○ Thomas Edison’s lab from the 1870s became General Motors
● Policy facilitated the rise of MNCs
○ 1890 Sherman Antitrust Act avoided anti competitive behaviour through
mergers and allowed giants to compete internationally
○ 1979 - adoption of the gold standard which eliminated currency risk
and encouraged trade / investment abroad
● Labour availability furthered the success - workers moved to more efficient
sectors following the fall in the price of wheat during a recession - only the
most efficient firms to survived
○ European migration to the Americas
● Protectionism - 1870 tariff protecting iron and steel producers
○ Producers donated to protectionist politicians
The southern US and the 2nd IR
● Southern USA lost the civil war - in reconstruction from 1865-77
○ Large corporations / capital flows moved south
● Cotton textiles were developed (producing 9m bales in 1891)
○ Prices forced down and cotton was exported to Asia and Latin America
● Tobacco was a major industry and dominated Asian markets by 1912
● Was a good supply of labour but was poor - per capita was ½ of the US
average in 1900
○ The South did not receive European migrants
● South was dependent on the North for capital and on Asia / LA for exports
Britain and the 2nd IR
, ● Late Victorian Britain is the same time period as the 2nd IR (1870-1913) -
when the so-called “failure” occurred
● 1850s-70s: Mid Victorian success, Britain was the workshop of the world
○ Produced ⅓ of manufactured goods
○ Richest country which controlled 40% of trade in manufactured goods
● 1870s-WW2: Late Victorian failure (penalties of an early start)
○ GDP per capita growth rate fell from 1.3% to 0.9%
○ Germany overtook Britain for manufacturing
● Relative failure
Causes of failure
● Overcommitment to the 1st IR
○ Stuck in traditional, low productivity sectors
○ Legacy of inappropriate institutions
○ Locked into a growth pattern with lower productivity sectors with few
potential gains - little substitution of labour for capital
○ Interest group constraints - factory groups limit technological change
because they are benefitting from the current system
○ Is possible for countries to recover after reforms - BR did not due to the
1st mover disadvantage
● Too much capital going abroad
○ High social returns to investment at home but high private returns to
investment abroad - spillovers and externalities
○ ⅓ of British investment went abroad
● Failures in the banking system - inefficient banks
○ Unable to supply LR finance due to “money back on demand” orthodox
○ Concentration and centralisation of smaller banks after the 1858 and
1862 banking acts
● Failures in the banking system - inefficient stock market
○ SMEs priced out as the exchange wanted issues of over £1 million
● Failures in the banking system - new industry bias
○ New industries were risky so capital markets were against them
○ Poor information for new industries
● Education system - education was only made compulsory in 1870
○ Public schools and Oxford uni did not teach science (Germany did)
○ Universities taught a classical curriculum
○ Only 1200 graduated from civic unis (taught science) in 1910
● Industrial organisation - atomistic competition in Britain
○ Low concentration, family firms with poor marketing and a lack of R&D
○ High unionisation and a lack of labour control
○ US and Germany had corporate capitalism with high concentration,
advanced marketing and R&D and social control
Managerialism and Mass production (Chandler, 1977)
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