The Emergence of Inclusive Institutions in England and the Industrial Revolution

Key Insight

England's breakthrough to sustained economic growth in the seventeenth century was fundamentally shaped by a preceding political revolution that established a distinct set of inclusive institutions. Key events in this institutional evolution were the English Civil War (1642-1651) and the Glorious Revolution of 1688. The Glorious Revolution critically limited the power of the monarchy and the executive, shifting the authority to determine economic institutions to Parliament. This move simultaneously broadened the political system, allowing a wider cross-section of society to influence state functions, thereby laying the groundwork for a pluralistic society and creating the world's first truly inclusive political institutions.

As a direct consequence of these political reforms, England's economic institutions became progressively more inclusive. By the early seventeenth century, vestiges of feudal restrictions like serfdom had vanished, and subsequent reforms addressed remaining economic impediments. Post-1688, the government adopted policies that provided robust incentives for investment, trade, and innovation. It vigorously enforced property rights, including patents (e.g., James Watt's patent for his 'Fire engine' in 1775), which significantly stimulated innovation. Arbitrary taxation was abolished, most monopolies were eliminated, and English law was uniformly applied to all citizens. The state actively championed mercantile endeavors, removed barriers to industrial expansion, and employed the English navy to protect commercial interests, while rationalizing property rights facilitated crucial infrastructure development like roads, canals, and railways.

These decisive changes in institutional design fundamentally reshaped incentives, propelling prosperity and setting the stage for the Industrial Revolution. This radical transformation, building on centuries of accumulated European knowledge and scientific inquiry, was driven by the talents of numerous individuals. The full force of this revolution stemmed from an inclusive market that generated profitable opportunities for the development and application of new technologies. The market's inclusive nature enabled the efficient allocation of talent, while relatively high educational standards, for the era, fostered entrepreneurs capable of envisioning and implementing new technologies and securing skilled labor. Inventors like James Watt and Richard Arkwright thrived because their property rights were respected, and their innovations could be profitably sold and utilized in burgeoning markets.