By Owen Westfold

When we think of technological innovation, we tend to focus on brilliant new ideas—the key scientific or engineering insights that made the innovation possible. However, in almost all cases, there is a long road from insight to marketable product: such "lightbulb" moments are followed by a long and expensive process of research and development. As Edison famously remarked, "Genius is 1% inspiration and 99% perspiration."

The need for R&D means that, in addition to "genius," another ingredient is essential for technological invention to proceed: capital investment. When private investors or governments make an investment, they are essentially making a bet. For this bet to pay off, not only does the R&D process need to go well, but there must, of course, be sufficient demand for the product once it eventually goes to market.

Being one of the foundational themes of economics, it is not surprising that supply and demand provide a useful framework for thinking about technology. The capacity for invention—the "supply"—is a necessary but not sufficient condition. Without demand for a new technology, who would bother to invent it?

Why did the Industrial Revolution happen in Britain?

As a culture, we seem to have a preference for supply-side explanations for technological invention and technological progress. This appears to be true not just in popular caricatures of the "genius inventor," but in academic discourse as well.

Recently I've been reading about the causes of the Industrial Revolution in Britain. I've been particularly impressed with Robert C. Allen's The British Industrial Revolution in Global Perspective. His demand-side argument, which I'll outline in a moment, focuses on economic incentives in a way that resonates with our contemporary understanding of disruption. "The Industrial Revolution was invented in Britain in the eighteenth century because it paid to invent it there, while it would not have been profitable in other times and places." Allen shows that all the key technologies of the Industrial Revolution—the steam engine, machines to spin and weave cotton, and the use of coal to smelt and refine iron—were shaped by the unique economic conditions of eighteenth-century Britain. This was particularly true in the initial stages. For example, the Newcomen atmospheric engine, which was the first steam engine to be successfully deployed in a commercial context, was used to pump water out of mines, especially coal mines in Britain. The same design would theoretically have worked in other contexts, but the early engines were so inefficient that essentially the only location where coal was cheap enough to make their operation profitable was the face of a coal mine! It was only much later, after years of steady improvements in power and efficiency, that the steam engine became a global technology when it spread around the world with shipping and the railways.

Before discussing the details of Allen's argument, I'll briefly go over some of the supply-side causes of the Industrial Revolution. First, Britain had a high level of human capital, including high rates of literacy and numeracy—capabilities that are arguably essential for inventors and engineers. Second, the Scientific Revolution of the seventeenth century provided some key ideas that were important for the invention of the steam engine in particular. Beyond these two reasons, we have theories that operate primarily at the cultural rather than the material level; for example, Mokyr argues that the Industrial Revolution was predicated on a specific culture of "Industrial Enlightenment," which happened to be strongest in Britain.

These supply-side theories are important, but taken on their own, they share a common weakness: they do not satisfactorily explain why the Industrial Revolution happened in Britain, and not in another leading economic power of the eighteenth century such as France, the Netherlands, or China. So what was so special about Britain? According to Allen, it was not the case that the British were "more practical, more enterprising, or better governed" than their foreign competitors. Rather, the British economy in the eighteenth century had a unique structure of wages and prices. At this time, due to Britain's success as an international trading power, British wages were higher than almost anywhere else in the world. On the other hand, energy was cheap, due to an abundance of coal. So there was a demand in Britain for inventions that could substitute cheap coal for expensive labor. All the breakthrough technologies of the Industrial Revolution were characterized by this property. In their crude early stages, the economics of these inventions made sense only in Britain. However, as they improved over time, their value equations changed, and they began to spread throughout Europe and the rest of the world.

Implications for today

The supply and demand dichotomy is helpful for thinking about disruption today. The history of the Industrial Revolution should remind us that, on the one hand, it is essential to pay close attention to economic incentives, since these incentives are ultimately what govern adoption. It is a safe bet that in a competition between two comparable technologies, the cheaper technology will win. Advocates of alternative energy sources such as clean hydrogen should keep this in mind.

Not all questions are about demand, however. Debates about how capable a given technology is, or will soon be, can be usefully contextualized as debates about technological supply. One such debate is the current controversy about the capabilities, or perhaps "intelligence," of large language models. Supporters of LLMs believe that their current inability to reason reliably about the world (e.g., the so-called hallucinations) is only a temporary problem that can be successfully addressed in the short term, while their critics tend to see this problem as intrinsic to the whole approach. But no one seriously doubts that the economic value of a reliable AI system would be immense.

Beyond the use of supply and demand as a framing tool, however, what I find most striking about Allen's argument is its simplicity. Cultural explanations, such as Mokyr's notion of an Industrial Enlightenment, can be difficult to evaluate and may work to subtly reinforce old notions of British and European exceptionalism. In contrast, Allen emphasizes simple structural features of the British economy that were, at least in part, a result of historical accident. Like all the major events of history, the Industrial Revolution was evidently an extremely complicated phenomenon, with many different causes. Allen's analysis succeeds at illuminating without being reductive; it is simplicity at the heart of complexity.

We find the same simplicity in cost curves. What, ultimately, is the reason SWB will disrupt fossil fuels? Well, the cost of SWB energy is dropping exponentially, and fast. On the other hand, the inflation-adjusted prices of the major fossil fuels have remained roughly constant over the past century and a half. These long-term trends mean that SWB energy is already cheaper than fossil fuel energy in most contexts, and SWB's advantage is only going to grow with time. People want cheap energy. So why would they pay more for fossil fuels, even before "pricing in" their climate externalities? Despite the undeniable complexity of the global energy system, these simple considerations make the disruption of energy all but inevitable.

Finally, it is worth remembering that technological development has a way of leading to unintended consequences, positive as well as negative. That's one reason why the term "disruption" is so appropriate. While the key technologies of the Industrial Revolution were initially motivated by a one-to-one substitution of energy for labor, they ended up laying the foundation for an entirely new system of production. The foundational disruptions of the twenty-first century promise to be even more transformational than this.