With all the talk of rebalancing, Robert Allen at Oxford University takes a look back into history and asks why the first industrial revolution took place in 18th century Britain and not elsewhere.
His answer? Britain was a high wage, cheap energy economy that encouraged investment in technolgoy rather than labour:
"It is still not clear among economic historians why the Industrial Revolution actually took place in 18th century Britain...Answers to this question have ranged from religion and culture to politics and constitutions....[But in reality] the British Empire’s success in international trade that created Britain’s high wage, cheap energy economy, and it was the spring board for the Industrial Revolution
The technologies of the Industrial Revolution were only profitable to adopt in Britain, that was also the only country where it paid to invent them. The ideas embodied in the breakthrough technologies were simple; the difficult problem was the engineering challenge of making them work. Responding to that challenged required research and development, which emerged as an important business practice in the eighteenth century. It was accompanied by the appearance of venture capitalists to finance the R&D and a reliance on patents to recoup the benefits of successful development. The Industrial Revolution was invented in Britain in the eighteenth century because that was where it paid to invent it."
So now that we're in a high wage, expensive energy economy will we really see another industrial revolution?
Yes, but as Allen suggests, only if it pays to invest in technology and develop innovations in the UK.
The £1.5 trillion question is does it pay to be a manufacturer in the UK as opposed to any other country in the world?
Probably, but not nearly as much as it used to. And that's the challenge facing our economy today.