Forged with Iron: The Industrial Origins of the Progressive Era

• In Event: Frontiers in Historical Political Economy

Abstract

Studies of modernization theory have struggled to offer credible causal evidence of the effect of industrialization on political power and policymaking. At stake in this assessment is an evaluation of the ability of democratic policymaking to effectively regulate market capitalism. This paper studies this question through the lens of the industrialization of the midwestern US in the late 19th and early 20th century. The discovery in the early 1890s of the Mesabi iron ore range in Minnesota dramatically improved national and local comparative advantage in steel. This massive change in relative factor endowments shifted the US nationally from a net importer to net exporter in steel over the course of a decade. Due to the transportation costs of shipping iron ore, this change in comparative advantage—steel potential—varied locally with access to Mesabi iron ore and pre-existing coal deposits. We present difference-in-difference estimates using county-level data from 1880 to 1920 that steel potential led firms and internal and external migrants to relocate to high potential counties. We document that steel potential led to industry concentration with larger and more productive firms becoming exporters. Our estimates indicate that although high potential areas paid sufficient wages to attract workers, the labor share of total revenues fell in these now concentrated labor markets, and we present evidence of higher rates of labor suppression. The legislative and electoral consequences of steel potential were also dramatic. Districts experiencing new comparative advantage started electing less protectionist members of the US Congress and their firms moderated their lobbying for trade protection. More broadly, members from high potential regions were consistent opponents of reforms, including anti-trust measures, that would have advantaged labor and limited the economic and political power of large steel firms. Our study suggests that the emerging industrial economy created new problems that US democracy was only partially able to handle. Steel-led industrialization empowered firms relative to workers shaping key economic and political outcomes.

Authors

• Kenneth F. Scheve, University of Notre Dame

• Theo Serlin, Princeton University