Once modern manufacturing was firmly established in Britain, this powerful force began to spread to other European economies and simultaneously to other distant economies where European settlers were dominating the polity and economy as well. In this sense spatial spread of modern manufacturing to the economies of America, Canada and Australia took place after it peaked in Britain. It was also an important historical fact that while modern manufacturing was finding its roots in other countries the nature of modern manufacturing was changing globally.
Due to these global changes, British manufacturing was slowly losing its status of being the manufacturer of the world. By the 1860s, a new industrialising economy, America, began to give stiff competition to British manufacturers. Its manufacturing firms were emerging as global players. The competitive advantage of US manufacturing largely depended on the availability of raw materials and natural resources, accompanied by increasing inflow of an immigrant workforce.
The competitive advantage of US manufacturing was also enormously facilitated by the existence of railways, telegraph and telephone. US manufacturing could leverage the advantage of these innovations because the United States started growing around the same time as these innovations were commercially exploited on a large scale. In fact, some of the development economists have established that the railway acted as leading sector of the economy. In the case of Britain, these innovations came into being after a considerable lapse of time (around seven to eight decades) from the time modern manufacturing emerged there in the 1760s. For instance, railways were developed in Britain around the 1830s, the telegraph around the 1840s, and the global connectivity of the telegraph was established in the 1870s.
The US manufacturing enterprises received enormous benefits from these innovations because these innovations provided them logistic support to cater to large markets. These benefits were the same as provided by the introduction of information technology to contemporary manufacturers. This advantage was manifested in the emergence of large-scale enterprises. Early entrepreneurs in US manufacturing like Rockefeller, Morgan and Carnegie established large enterprises, which was also facilitated by the introduction of methods of mass production.
The existence of large-scale enterprises also provided objective conditions for the introduction of methods of scientific management. Firms in America experienced rapid expansion in their scale of operations, from being single-plant, single-product and single-location to multiproduct, multi-plant and multi-national firms. Even increasing size of the enterprise necessitated the dependence of firms on savings of persons other than the promoters of the firm. This led to the birth of joint-stock companies, making a divorce between ownership and control inevitable. In new circumstances, ownership rested with the stockholders, whereas control was in the hands of professional managers. This phenomenon has been described as managerial revolution.
These three interrelated innovations in the method of production and its organisation provided distinct identity to the American manufacturing enterprises. These three innovations affected the nature of manufacturing very significantly. The use of the assembly line increased the size of the enterprises due to economies of scale and bulk production. The extent of division of labour at the shop floor to the minutest conceivable task further pushed forward the process. The separation between ownership and control gave birth to managerial hierarchies, which removed the managerial constraint, which kept the size of family firms very small in Britain.
These three unique characteristic of US manufacturing gave support to the view that technological changes are generally path-determined and they follow a path determined by socio-economic and political environment of the economy, collectively reflected in the institutional setting in which manufacturing enterprises grow. Since the emergence of these two, and subsequently several distinct patterns of growth of manufacturing, there started to emerge the prospects of global spread of modern manufacturing. The question, however, was that whether manufacturing would retain its structural uniformity in all economies where it is internalised, or would assume different forms or characteristics emanating from the temporal and spatial variations in the history, culture, factor endowments and institutions of different economies.
The former alternative view was based on the premise that temporal and spatial variations in the forces that have bearing on the process of development of modern manufacturing do not really matter, because it is an autonomous scaler process independent of socio-political and economic systems. The alternative strand of thought highlighted the differences in the nature of innovations and variety of forms that manufacturing can assume in the organisation of production over time and space. Therefore, this view emphasised the uniqueness in the pattern of growth of manufacturing at different points in time and space.
The uniqueness emerged because the growth of manufacturing was embedded in different institutional settings in different economies at a point in time and in the same economy over a period of time. Hence, this strand of thought was to identify the unique attributes of country-specific manufacturing and explain how these attributes determined the unique path or trajectory of development of modern manufacturing. After accepting these historical facts about modern manufacturing enterprises, economists evolved the term long waves rather than stages to describe paradigm shifts in manufacturing activities.
The term long wave rested on the premise that each long wave was associated with certain activities which provide it distinguishing characteristics. The identifying factor was that underlying each long wave was a clustering of innovations that provided each wave a distinct identity. This suggested that innovations in manufacturing were not isolated events but rather part of an interrelated technological system. The wave might consist of new products, new processes or new organisational structures because the ones already in use by leading enterprises got diffused very fast and became almost like a paradigm. Each wave in manufacturing embodied a distinct combination of products, processes and organisational forms, which also collectively influenced the other parts of economy. Therefore, each wave resulted in deep-rooted qualitative changes in the economy also.
These qualitative changes were necessitated by a need for realignment of policy regime with new economy, which was being evolved as a consequence of a new wave. Sometimes these waves became all-pervasive and altered the fundamental relationship between technological change, political change and social change. The new waves emerged in the same economy at different points in time or in different economies at a single point in time. The important facts regarding the characteristics of modern manufacturing that were country-specific or unique facilitated the birth of the national system of innovation. The National System of Production included manufacturing, national institutions including institutions creating and diffusing knowledge and skills, infrastructure and networks of transportation and communication for transporting people, ideas and goods. This concept gave overriding importance to building national infrastructure and institutions that were engaged in the creation and accumulation of human capital. This concept also gave equal importance to processes that facilitated proper utilisation of human capital in initiating the process of economic development through state intervention.
In its contemporary form, the concept of a national system of innovation emerged as a system arguing that short-term strategies that are used by economies, by manipulating factor prices and exchange rates, play only a marginal role in increasing the competitiveness of the manufacturing sector of an economy. It was emphasised that competitive advantage of the manufacturing sector of any economy depends on how efficiently it assimilates new technological systems and how far the new technological systems match or mismatch with the institutions prevalent in the economy. An economy that might have been growing faster with one form of dominant technological paradigm may suddenly experience stagnation, or down turn, if its institutions are not able to respond to the new emerging technological paradigm. TW