The Past Speaks

There is a huge body of literature on the role of firms in basic and applied scientific research. That’s why I’m interested in Professor Ted Binema‘s new book on how the Hudson’s Bay Company supported scientific research during the period in which it enjoyed commercial monopoly in much of what is now Canada. Much like Bell Labs back in the glory days of AT&T, the HBC ploughed money into basic research.

Demonstrating whether a firm’s investments in basic science translates into higher profits for the company is very difficult to do, especially since knowledge has public-good properties. However, Binema’s case study may allow him to isolate the effects of this investment, as the HBC had a trading monopoly for a long period and thus could be expected to appropriate part of the social surplus resulting from their research expenditure.

Binema’s book will be of interest to anyone who liked Mokyr’s The Enlightened Economy.

Binema’s work also parallels some new research by  Mara P. Squicciarini and Nico Voigtländer. These authors examine the role of Enlightenment knowledge in French economic growth in the period just before the French industrial revolution. Their conclusion is that towns that were more engaged in the Enlightenment (as measured by the proportion of residents who subscribed to the Encyclopédie) grew faster in subsequent years.

To measure the historical presence of knowledge elites, we use city-level subscriptions to the famous Encyclopédie in mid-18th century France. We show that subscriber density is a strong predictor of city growth after 1750, but not before the onset of French industrialization. Alternative measures of development confirm this pattern: soldier height and industrial activity are strongly associated with subscriber density after, but not before, 1750. Literacy, on the other hand, does not predict growth. Finally, by joining data on British patents with a large French firm survey from 1837, we provide evidence for the mechanism: upper tail knowledge raised the productivity in innovative industrial technology.