Institutional change and the adoption of new technologies: the case of steam


A large literature documents a slow rate of adoption of technologies — from electricity to ICT — that could seemingly raise firm productivity significantly. The paradigmatic technology of the Industrial Revolution, steam power, provides a telling example. Adopting steam promised large gains in firm-level productivity, as it enabled the mechanization of a wide range of production tasks. Contemporary observers ascribed it a key role as the engine behind the accelerated pace of productivity growth and the rise of the factory. Yet, cliometric analysis of the first General Purpose Technology paints a less revolutionary picture: Steam power diffused slowly and its growth impacts took more than a century to fully materialize.

A potential barrier to the diffusion of steam was that the new technology involved major capital investments and required firms to operate their establishments at a larger size than before. In tandem with the spread of steam technology, the modern corporate form experienced its widespread breakthrough that may in several ways have lowered these adoption barriers. In particular, the rise of the corporation may have facilitated access to credit and lowered the risks involved in making significant capital investments. In turn, these factors could have facilitated the adoption of steam engines enabling firms to operate at a larger size.

In this project, we use establishment-level data on Swedish manufacturing industry to study the adoption and impact of steam with a particular focus on the potential complementarity between institutional innovation – the modern corporation – and technological change. We will examine whether incorporation raised the probability that an establishment adopted steam and explore potential complementarities between the choice of corporate form and the impact of steam. Together, these results allows us to shed light on whether organizational innovations were required to reap the full benefits of new technologies during industrialization.