The British Industrial revolution and
incentives for new technologies. This

section raises a very important economic
history question:

why the Industrial Revolution happened
first in Britain

as opposed to other countries like France, Netherlands or China or

India, and this section
answers this question by using

the model that we built so far, the cost
and

technology model. As before these, are isocost curves

and these are technologies. Let's focus
on the technology

of clock production before the
Industrial Revolution

in 17th century. That technology here is
represented by

B, which is a relatively labor-intensive
technology: you need

four workers and only two tons of coal
to run this technology.

This technology made sense
because the price of labor was

relatively low at that time. As you can
see it didn't make

sense for Britain to move from
technology B

to technology A, which is a more
energy-intensive technology. In other

words Britain didn't have any incentive to

automate, why? Because the price of labor was low.

As you can see, technology A lies
to the right of our isocost curves,

so it didn't make economic sense to move
from B

to A, but things started to change as
Britain moved from

17th century to 18th century. Wages start
to gradually increase,

therefore Britain moved from this isocost curve JH

to this new iso cost curve FG, which is steeper and reflects the

price of labor
going up. Now in this new world

Britain had an incentive to replace
labor: it had an incentive to automate, why?

Because the cost of labor was
increasing, therefore it had an incentive

to move away from this
labor-intensive technology towards a

more
energy-intensive one. It had an incentive

to invent
new automated technologies. As you can

see now in this new
isocost curve technology B

is more costly and technology A
makes economic sense. Because of this

incentive we got this new technology.

Now let's have a quick look at the
evidence and see whether the data fits

the story or not. If we scroll
up we find data

from the early 18th century on the
relative price of labor wages

to the relative price of energy. In these
cities, Newcastle, London, Amsterdam,

Strasbourg, Paris and Beijing and as you can see,

in Britain the relative cost of labor to
energy was highest, therefore Britain had

the highest incentive to
automate to replace labor. So the data

is consistent with the theoretical story
that I told you.

Now let me end with this important
question: is this simple model of isocost

lines and technology useful to think

about the next
industrial revolution everybody is

talking about, the upcoming artificial
intelligence revolution? Thanks to the

advancements in big data and computer
sciences

everyone is excited about driverless
cars, 3-D printers,

a new generation of industrial robots
that are going to replace our physical

and cognitive abilities. This upcoming
revolution poses a series of important

questions to think about,
for instance is AI going to impact all

the sectors or countries in a uniform
way?

Who will be the main winners and losers
of this revolution within societies?

And finally, can we shape this revolution?
Can governments shape the advancements

in AI in a way that we end up with

technologies that benefit most people in the society? Now I believe

the simple model of isocost lines and
technology can help us

to think about this question, so I'll leave
the rest of it to you.

Thank you.