Poverty or backwardness or the lack of industrialization is always and everywhere a social coordination-failure problem. The problem arises because of the enormous costs of creating market and its fundamental pillar—social trust.
The free market is not free. It is a fundamental public good that is extremely costly to create. The ongoing industrial revolution in China has been driven not by technology adoption, per se, but instead by continuous market creation led by a capable mercantilist government
Democracy cannot function without industrialization. Industrialization is impossible without a strong state.
Food is a very special type of consumer good: People die without it, but its marginal utility diminishes to zero quickly as soon as the stomach is filled.
The industrial revolution must be understood not just as a new mode of mass supply of quantities but as a new mode of mass supply of varieties.
An industrial revolution cannot be detonated simply by a sprut of high investment rate in modern efficient technologies. Nor can it be detonated by suddenly switching to democracy or universal suffrage. It must start humbly in the rural areas and under a politically stable environment
If modern firms do not exist, it is because of such prohibited transaction costs, largely due to large business uncertainty and lack of social trust and commerical infrastructure
It is not only technology and labour but distribution both foreign and domestic that enables an industrial revolution to happen
China attracts seven times more foreign direct investment than India.
Only a massive market with mature distribution networks and highly-income elastic demand could stimulate and sustain profitable mass production through mechanization.
In their early development stages, France, Germany, and the US in the 19thc, Japan in the late 19th and early 20thc, Taiwan, Singapore, and South Korea in the middle 20thc all followed a road to prosperity paved with textiles.
China has (re) discovered that this slow and lengthy natural market fermentation process can be dramatically shortened into mere decades through engineered market fermentation by a powerful government.
Why is China’s rise unstoppable? Because of the colossal national wealth China has created, based on proper development strategies and industrial policies, based on its vision for manufacturing and industrial system, and based on its state capacity to support scientific research.
Democracy and massive privatization have failed to create in these economies the market for mass-produced consumer goods except perhaps most easily drugs, porn, and prostitution.
One of West Germany’s biggest mistakes after reunification was its attempt to immediately pill East Germany into the welfare state. This made East Germany’s manufacturing sector far less competitive that it would be, so it collapsed overnight.
An example of tacit knowledge is the Bessemer steel process. It has existed since the 11th century. In the 17th Century European travelers detailed it’s possible use by the Japanese. Eventually Bessemer took out a patent, sold it, but was sued when purchasers couldn’t make it work. In the end, Bessemer created his own steel company and it became the largest in the world.
China has right multi-customer cargo rail routes to Europe.
Markets would never emerge without political stability and social trust. Yet a safe and unified national market is the absolute prerequisite of the division of labor and the existence of cooperatives, organized trade, and financial contracts.
Only industrialized societies where labor, instead of land and capital, has become the scarcest resource in production are more likely and capable of developing democracy with universal suffrage and to have the ability to benefit from it and the resources to enforce it.
The lack of strong government support in industrial policies and technological upgrading explains why so many proto-industrialization processes in 18th century Europe failed to kick-start the Industrial Revolution.