I probably didn't understand you original point well, and I not sure I understand it still. The point was that competition between states spurred innovation. But of course if all those states are constantly on the verge of collapse then I agree not much will happen. I would argue that in the later medieval period most European states had achieved a lot of stability which helped prosperity grow.
Yet in relative terms, I would say Europe was still embroiled in a lot more wars than China even during the industrial revolution. Think of the 7-years war, Napoleonic wars, American war of independence.
Why the industrial revolution happened in Britain is of course a big topic onto itself. I have argued before that it could in fact ONLY have happened in Britain due to the geography, resources and climate of Britain: https://medium.com/lessons-from-history/why-england-industri...
1. France and the Netherlands lacked the coal and iron.
2. Germany didn't have the right kind of coal, and no as ideal conditions to dig canals and utilize water power as Great Britain.
If you sort of go over a checklist of needed prerequisites, you are pretty much left with Britain. Sure it could have happened elsewhere but then only after a number of other innovation had happened. At the technological level the world existing in in the mid 1700s, Britain was really the only candidate.
Internal stability is of course always good, but Italy, Spain, France, Greece etc could not possibly have started an industrial revolution no matter how peaceful and stable they had been. They just lacked the resources, climate and geography to do so.