Technology and Social Change

Lecture 8: Industrial Revolution

Bogdan G. Popescu
bgpopescu@tec.mx

Tecnológico de Monterrey

Motivation & Framing

Why Study the Industrial Revolution?

  • First modern case of technology reshaping an entire society
  • Productivity gains were unprecedented in human history
  • Created institutions we still live with today
  • Offers a template for thinking about AI and automation

“The Industrial Revolution was the most important event in the history of humanity since the domestication of animals and plants.” — Often attributed to Hobsbawm

A Before-and-After Snapshot

Figure 1: UK GDP per capita, 1700–1900

The Core Puzzle

Technology outpaces institutions

  • New technologies create gains — but also disruption
  • Institutions (laws, norms, organizations) adapt slowly
  • The gap between technology and institutions produces conflict
  • Understanding this lag is the key to the entire lecture

The Technology–Institution Gap

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  A["New Technology<br/>(e.g., Steam Engine)"] --> B["Productivity<br/>Gains"]
  B --> C["Social<br/>Disruption"]
  C --> D["Institutional<br/>Lag"]
  D --> E["Political<br/>Pressure"]
  E --> F["Institutional<br/>Adaptation"]
  F --> G["New<br/>Equilibrium"]
  G -.->|"Next shock"| A

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  style C fill:#b44527,color:#fff,stroke:#334155
  style F fill:#4a7c6f,color:#fff,stroke:#334155
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So What?

The Industrial Revolution shows that technological progress is never socially neutral — it creates winners and losers, and institutions must eventually respond.

Next → What conceptual tools do we need to analyze this?

Conceptual Foundations

General-Purpose Technologies (GPTs)

A technology that transforms an entire economy

  • Pervasive: used across many sectors
  • Improvable: performance increases over time
  • Spawns innovation: enables new products and processes
  • Examples: steam, electricity, the internet

. . .

Key insight: GPTs do not just improve one task — they restructure the economy (Bresnahan & Trajtenberg, 1995).

Comparing GPTs Across Eras

GPTs share common diffusion patterns.
Feature Steam (1770s) Electricity (1890s) Digital/AI (1990s)
Pervasiveness High Very High Very High
Improvement arc ~80 years ~50 years Ongoing
Skill complement Low → High Medium → High High
Institutional lag ~60 years ~40 years ?

Technology vs. Organization of Production

  • Technology = the machines and techniques
  • Organization = how production is arranged (firms, contracts, labor)
  • The same technology can yield different outcomes under different organizations
  • The factory system was an organizational innovation, not just a technological one

As Mokyr (2002) argues, the factory was fundamentally a new way of organizing people — not just machines.

Complementarity Framework

Technology, Skills, and Institutions

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flowchart LR
  T["Technology"] <--> S["Skills"]
  S <--> I["Institutions"]
  I <--> T
  T --> O["Economic<br/>Output"]
  S --> O
  I --> O

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  style S fill:#b44527,color:#fff,stroke:#334155
  style I fill:#b7943a,color:#fff,stroke:#334155
  style O fill:#1e293b,color:#fff,stroke:#334155

Key idea: Changing one element without the others creates misalignment and friction.

Discussion Exercise 1

Identifying General-Purpose Technologies

Prompt: Choose a technology from the past 50 years (e.g., the smartphone, the internet, GPS). Does it meet all three GPT criteria — pervasiveness, improvement over time, and spawning complementary innovations? Present one example for and one against.

Format: Pairs, then brief class share

Time: 5 minutes

So What?

GPTs do not arrive in a vacuum — their impact depends on how skills and institutions co-evolve with the technology.

Next → Let’s apply these concepts to the actual technology of the Industrial Revolution.

Technological Core

Steam Power and Mechanization

  • Newcomen engine (1712): pumped water from mines
  • Watt’s separate condenser (1769): doubled efficiency
  • Rotary motion adaptation (1781): powered factories
  • Steam became the universal energy source by 1830s

Steam was the GPT of the Industrial Revolution — it connected mining, textiles, transport, and manufacturing.

From Cottage Industry to Factory

Two systems of production

  • Putting-out system: merchants supplied raw materials to home workers
  • Factory system: workers gathered under one roof with powered machinery
  • Factories enabled supervision, quality control, and continuous operation
  • Transition was gradual — both systems coexisted for decades

Scale, Speed, and Standardization

  • Steam removed energy constraints of water and muscle
  • Output per worker rose dramatically in textiles and iron
  • Standardized parts enabled interchangeable manufacturing
  • Transportation (railways, steamships) shrank distances

The result: a self-reinforcing cycle — cheap energy → more output → larger markets → more investment in machines.

The Coal Revolution

Figure 2: UK coal production, 1700–1900

The Structural Shift in Labor

Figure 3: UK labor force by sector, 1700–1900

So What?

Steam power and mechanization did not just increase output — they fundamentally reorganized where and how people worked.

Next → What did this transformation mean for workers themselves?

Labor & Social Transformation

The Shift to Wage Labor

  • Pre-industrial workers often controlled their own time
  • Factories created a new relationship: employer–employee
  • Workers sold their labor for a wage, not a product
  • This was a profound change in economic and social identity

“The worker became an appendage of the machine.” — Karl Marx (1867)

The Factory System

  • Centralized production under one roof
  • Division of labor: tasks broken into repetitive steps
  • Workers no longer needed full craft knowledge
  • Management hierarchy emerged to coordinate production

The factory was both a technological and an organizational innovation.

Deskilling and Reskilling

A dual process

  • Deskilling: artisan knowledge replaced by machine routines
  • Handloom weavers, for example, saw wages collapse after 1800
  • Reskilling: new occupations required new expertise
  • Engineers, overseers, and machine operators were in demand

. . .

The net effect: a polarized labor market — high skill vs. low skill.

Time Discipline and New Class Structures

  • Factory work imposed clock time on daily life
  • Work rhythms shifted from task-oriented to time-oriented
  • A new industrial working class emerged in cities
  • A new capitalist class controlled the means of production

“The first generation of factory workers were taught by their masters the importance of time.” — E. P. Thompson (1967)

So What?

Industrialization did not simply create wealth — it created new social classes with opposing interests, setting the stage for inequality and conflict.

Next → How were the gains from productivity growth actually distributed?

Inequality & Social Conflict

The Distributional Paradox

  • National output grew rapidly after 1780
  • But real wages for workers stagnated for decades
  • The gains went disproportionately to capital owners
  • This pattern is called “Engels’ Pause” (Allen, 2009)

Key question: Why did it take so long for workers to share in the gains?

Engels’ Pause: Wages vs. Output

Figure 4: Real wages lagged GDP per capita for decades

Urbanization and Social Dislocation

Figure 5: English urbanization rate, 1700–1900

Worker Resistance: The Luddites

  • Luddites (1811–1816): textile workers destroyed machinery
  • Not anti-technology per se — they opposed wage cuts and deskilling
  • Government response was harsh: machine-breaking became a capital offense
  • Luddism reveals the political dimension of technological change

The Luddites were defending a way of life, not rejecting progress.

Discussion Exercise 2

Winners and Losers

Prompt: Based on Engels’ Pause, factory owners gained while workers’ wages stagnated for 50+ years. Why might this pattern persist so long? Brainstorm at least two mechanisms (economic, political, or institutional) that delayed the sharing of productivity gains.

Format: Small groups (3–4), then class discussion

Time: 5 minutes

So What?

Productivity growth without institutional safeguards concentrates gains at the top — and eventually provokes social and political backlash.

Next → How did institutions eventually respond?

Institutional & Political Responses

Labor Regulation and Education

  • Factory Acts (1833, 1844, 1847) limited child labor and working hours
  • Compulsory elementary education introduced in 1870
  • Regulation was initially resisted by factory owners
  • Educated workers eventually became more productive

Institutions adapted to the new economic reality — but it took decades.

Collective Organization and Early Welfare

  • Trade unions legalized in 1824 (Combination Acts repealed)
  • Friendly societies provided mutual insurance
  • Poor Law Amendment Act (1834) restructured welfare
  • Gradual extension of voting rights (Reform Acts 1832, 1867)

Workers organized collectively when individual bargaining failed.

Key Institutional Reforms

Institutional responses lagged the onset of industrialization by 40–60 years.
Year Reform Purpose
1833 Factory Act Limited child labor in textiles
1834 Poor Law Amendment Restructured public relief
1842 Mines Act Banned women and children underground
1847 Ten Hours Act Capped the factory working day
1870 Education Act Introduced compulsory schooling
1884 Third Reform Act Extended male suffrage

Path Dependence in Institutional Change

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  A["Pre-industrial<br/>Institutions"] --> B{"Critical Juncture:<br/>Factory System"}
  B -->|"Reform"| C["Factory Acts &<br/>Education Acts"]
  B -->|"Laissez-faire"| D["Minimal<br/>regulation"]
  C --> E["Regulated<br/>labor market"]
  D --> F["Persistent<br/>inequality"]
  E --> G["Welfare state<br/>(20th century)"]
  F --> H["Social<br/>instability"]

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So What?

Institutions do not change automatically — they change when political pressure, organization, and ideas converge. And once a path is chosen, it shapes future possibilities.

Next → What does this tell us about managing technological change today?

IR vs. AI/Automation: Parallels

  • Both are general-purpose technologies transforming many sectors
  • Both create a gap between technology and institutions
  • Both produce winners and losers based on skill levels
  • Both provoke anxiety about the future of work

Key difference: The speed of change may be much faster today.

Comparing Technological Shocks: Then and Now

Structural parallels between historical and modern technological shocks.
Dimension Industrial Revolution AI / Automation
Key technology Steam engine Machine learning
Displaced workers Artisans, cottage workers Routine cognitive and manual
Time to institutional response 40–60 years Unknown
Skill premium shift Low → medium skill Medium → high skill
Geographic disruption Rural → urban Global reallocation

Automation Risk by Occupation

Figure 6: Estimated automation probability by occupation

Lessons for Managing Technological Change

  • Productivity gains do not automatically benefit everyone
  • Institutional response time matters enormously
  • Education and retraining are necessary but insufficient alone
  • Collective voice (unions, democratic participation) accelerates adaptation
  • Path dependence means early policy choices have long-run consequences

Discussion Exercise 3

Designing Institutions for AI

Prompt: You are advising a government on AI policy. Drawing on the Industrial Revolution, propose one institutional reform that could help manage the transition. Consider: Who are the likely losers? How fast must the response be? What failed or succeeded in the 1800s?

Format: Small groups (3–4), prepare a 1-minute pitch

Time: 5 minutes

Key Takeaways

  • The IR was a GPT-driven shock that reshaped economy and society
  • Technology outpaced institutions for decades, causing inequality
  • Workers bore the costs; capital owners captured the gains
  • Institutional adaptation (regulation, education, unions) eventually followed
  • Today’s AI revolution faces the same structural dynamics
  • The speed and design of institutional response will determine outcomes

References

References (1/2)

Acemoglu, D., & Robinson, J. A. (2012). Why nations fail: The origins of power, prosperity, and poverty. Crown Publishers.

Allen, R. C. (2009). Engels’ pause: Technical change, capital accumulation, and inequality in the British Industrial Revolution. Explorations in Economic History, 46(4), 418–435.

Bolt, J., & van Zanden, J. L. (2020). Maddison style estimates of the evolution of the world economy: A new 2020 update. Maddison Project Database, version 2020.

Bresnahan, T. F., & Trajtenberg, M. (1995). General purpose technologies: “Engines of growth”? Journal of Econometrics, 65(1), 83–108.

Crafts, N. F. R. (1985). British economic growth during the Industrial Revolution. Oxford University Press.

Frey, C. B., & Osborne, M. A. (2017). The future of employment: How susceptible are jobs to computerisation? Technological Forecasting and Social Change, 114, 254–280.

Hobsbawm, E. J. (1962). The age of revolution: 1789–1848. Weidenfeld & Nicolson.

References (2/2)

Lipsey, R. G., Carlaw, K. I., & Bekar, C. T. (2005). Economic transformations: General purpose technologies and long-term economic growth. Oxford University Press.

Marx, K. (1867). Das Kapital: Kritik der politischen Ökonomie (Vol. 1). Verlag von Otto Meissner.

Milgrom, P., & Roberts, J. (1990). The economics of modern manufacturing: Technology, strategy, and organization. American Economic Review, 80(3), 511–528.

Mitchell, B. R. (1988). British historical statistics. Cambridge University Press.

Mokyr, J. (2002). The gifts of Athena: Historical origins of the knowledge economy. Princeton University Press.

Mokyr, J., Vickers, C., & Ziebarth, N. L. (2015). The history of technological anxiety and the future of economic growth: Is this time different? Journal of Economic Perspectives, 29(3), 31–50.

Thompson, E. P. (1967). Time, work-discipline, and industrial capitalism. Past & Present, 38, 56–97.

Wrigley, E. A. (2010). Energy and the English Industrial Revolution. Cambridge University Press.