Great Britain's Cotton Textile Industry, 1900-1913
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The Myth of the CorporateEconomy: Great Britain's Cotton Textile Industry, 1900-1913 Timothy Leunig1 DepartmentofEconomics, Nuffeld College UniversityofOxy½rd It is never difficult to defend an interest in the Lancashire cotton industry,for it has a uniqueplace in the historyof England'sindusthai revolution.Rostow gives it the ultimateaccolade: "the original leading sector in the first take-off," and to Crafts and Harley, "the really big issue [in determiningthe rate of growthduring the industrial revolution] is undoubtedly the weightingof cottonrather than the correctdistribution of value added weightsamong the other sectors"[Rostow, 1990, p. 53; Craftsand Harley, 1992, p. 706]. Cotton overtook wool to become Britain's single most importantsource of incomeby 1810,and retained this position until the end of the nineteenthcentury. At its 1913peak, the industryemployed over half a millionpeople and consumed over 2.1 billionpounds of raw cotton[Robson, 1957,pp. 331, 333; Deaneand Cole, 1969,p. 163;Sandberg, 1981, p. 114; Mitchelland Deane, 1962, p. 186-8]. The industry'sexport performance was more remarkable still. It became the nation'sbiggest exporter during the NapoleonicWars, a positionit wasto retainfor 125 years;in 1830 it even exceededall other exportscombined [Deaneand Cole, 1969, p. 31].In 1880over 80% of theworld's cotton exports camefrom Britain,and mill ownersboasted that theymet the needsof the home marketbefore breakfast and devotedthe rest of the day to exports [Robson,1957, p. 4; Aspin,1981, p. 3]. At its peakin 1913,Britain exported over7 billionyards of cloth,approximately equivalent to a shirtand pair of trousersfor everyman, woman, and child in theworld [Sandberg, 1974, p. 4]. But 1918 sawthe startof a declinethat wasto proveboth long and unrelenting.By 1933 Japanhad overtakenBritain to becomethe world's biggestexporter of cottongoods, although cotton was to remainBritain's biggestexport until the outbreakof war [Aspin,1981, p. 4]. In 1944Keynes • I wouldlike to thankColleen Dunlavy, Charles Feinstein, and James Foreman-Peck for helpfulcomments, and James Cotton for allowingme to usehis unpublished thesis. Any remainingerrors or omissionsare my own.I thankthe RoyalEconomic Society, Nuffield College,and the Sir John Hick's Fund for support.An earlierversion of this work was awardedthe Universityof Oxford'sGeorge Webb Medley Prize for bestMaster's thesis in economics. BUSINESSAND ECONOMIC HISTORY, VolumeTwenty-five, no.2, Winter 1996. Copyright¸1996 by theBusiness History Conference. ISSN 0849-6825. 53 54 / TIMOTHY LEUNIG stillsaw cotton spearheading Britain's postwar export drive, asking "who will exportcotton goods if Britaindoes not - Japan,America, who?" Even after the war governmentpropaganda asserted that "Britain'sbread hangsby Lancashire'sthread" [Singleton, 1991, pp. 1, 37]. But k wasnot to be: despite generalworld-wide prosperity, output only twicereached its worstinterwar level,and by 1959,within twentyyears of cotton'sbeing its largestexport, Britain becamea net .importerof cotton cloth [Robson,1957, p. 333; Singleton,1991, p. 115].Mills continuedto closeat the rate of almostone a weekthroughout the 1960sand 1970s,until the industrybecame litfie more than an increasinglydistant memory [Aspin, 1981, p. 4]. The mills of Lancashire have indeed fallen silent. British EntrepreneurialFailure and the Cotton Industry The economiccritique of Victorian Britain revolvesaround three themes:"that outputgrew too slowlybecause of sluggishdemand, that' too much was investedabroad because of imperfectcapital markets, and that productivitystagnated because of ineptentrepreneurship" [McCloskey, 1970, p. 446]. This paperconcerns the third debate:did Britainsuffer from an abnormallypoor set of entrepreneurs? British entrepreneursstand accusedof being poor salesmen,of neglectingscience and research,and of favoringold stapleindustries over newerones with brighterfutures lAidcroft, 1964]. But aboveall, it is argued thatentrepreneurs after c. 1870failed to adoptmodern technology, preferring to remainwith whatthey knew. Arnold Toynbee summed it up effectively:"if onewere to singleout thepoint in whichGreat Britain has been most at fault, onewould put hisfinger on the conservatismof our captainsof industrywho haveidolized the obsolescenttechniques which have made the fortunesof theirgrandfathers" [quoted in Jewkes,1951, p. 9]. The Britishmanufacturer is said to have "baskedin the complacentglory of economichegemony" [Landes,1969, p. 336]. Giventhe importanceof the cottonindustry to the Britisheconomy, andthe scale of itsdecline, it isunsurprising that this thesis has been applied as vigorouslyto it asto anyother. Before we go on to seehow that criticism has beenapplied, we needto knowjust a litfieabout the processes that make up a cottonindustry. A glossaryof textileterms is also given as an appendix. Cotton processinghas two principalparts: spinning raw cottoninto yarn,and then weavingthe yarn into cloth. In thispaper we confineourselves to lookingat cottonspinning. The casefor technologicalconservatism in spinningis easily made.A newerform of spindle,the ting,was technically viable for coarse yams- thatis, counts of up to 40,by 1880,and by 191390% of spindlesin the UnitedStates were rings rather than mules. In contrastunder 25% of British spindleswere rings [Lazonick, 1981, p. 90].While the case is easilymade, it is equallystraightforward to assess.At leastprior to the inventionof the THE MYTH OF THE CORPORATE ECONOMY / 55 automaticloom, the qualityof yarnproduced by both machineswas identical, sothe question of technologyis a readilyquanfifiable question of costs. There are three principalcost differencesthat are importantto a spinnerinstalling new spindles. First, mule spindles require skilled labor, which is considerablymore cosily than the unskilled labor that a ringspinner can use. Second,the spinnerof anythingbut the coarsestyarns is forcedto purchase slightlybetter quality raw cottonin orderto operaterings successfully. Finally, a ringspinner may face an additionaltransport cost premium. Unlike' the mule spindle,which produces "cops," packages consisting entirely of yarn,the ring spindlespins onto a heavywooden bobbin from which the yarn cannotbe removedeconomically. The wooden bobbin has to be transportedto the weaverwith the yarn, and later returnedto the spinnerfor re-use.As the bobbinweighed twice the yarnspun onto it, thisimplies a fivefold increasein transportcosts. Lancashire's system of industrialorganization, of individual firmseither spinning or weaving,makes this a potentiallyimportant considera- tion, but it did not matterin the United States,where spinning and weaving werecarried out by onefirm on onesite. By reconstructingthe factor costsfaced by British and American spinners,Lars Sandberg argues that both behavedrationally in theirchoice of technologies[Sandberg, 1969, 1974].The essenceof his argumentis simple: the skilledlabor requiredfor mule spinningwas far more common in Lancashirethan in the United States.As such,mule spinnerswere compar- ativelyinexpensive to hire in Britain,and so Britishspinners continued to installmule spindles to a muchgreater extent. Followingseveral empirical corrections to Sandberg'swork, Lazonick agreesthat British managers were responding accurately to thecosts that they faced[Lazonick, 1981]. But hisempirical revisions raise the importance of the transportcost premium relative to thaton laborcosts, leading him to conclude that "[t]he primary constrainton the introductionof ring spinningin Lancashirewas the costof shippingring yarn" [Lazonick, 1983, p. 205].By developingintegrated fro'ns on the Americanmodel, the Lancashireindustry couldhave avoided this constraint. By failingto do so,they proved themselves to be goodmanagers but poorentrepreneurs. Transport Costs Lazonick'scalculations, which conclude that the highertransport costs associatedwith usingrings in a verticallyspecialized industry were the single mostimportant cause of lowerring adoptionin Lancashire,are basedon a pieceof contemporaryindustrial espionage which states that yarn traveled an averagedistance of 30 milesin orderto be woven,at a costof 15½per hundredweight[Whittam, 1907, p. 32].This implies a transportcost premium of 0.5½per poundof yam spun[Lazonick, 1981, p. 100].This did not applyto warp yarn,which had to be rewoundprior to weavingin any case.Ring 56 / TIMOTHY LEUNIG spinnerswere able to rewindthe warpyarn ready for weavingthemselves, avoidingshipping their bobbins at all. There are three objectionsto Lazonick'sexercise, one factual,two methodological.First, his source,Whirtam, overestimatesthe size of Lancashire.From the largestspinning town, Oldham, only one of the five Lancashireweaving towns, Preston, was over 30 milesaway, the other four townsbeing considerably closer, with an averagedistance of 23 miles. The methodologicalissues are more interesting. To showthat transport costsare a constraint,we needto shownot that spinnerschose to transport their cottonconsiderable distances, but that they had no choicebut to do so. Second,we arenot interestedin the distancethat the averagepiece of yarnhad to travelto be woven,but in theproportion of spinnerswho had no choicebut to transporttheicyarn more than some economically critical distance. Even if yarnhad to travelan averageof 30 milesto be woven,the proportion of f•rns affectedby transportcosts could vary tremendously: if all firmshad to movetheir yarn 30 milesall mighthave been constrained from adoptingrings, but if half had to movetheir