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The Myth of the CorporateEconomy: Great Britain's , 1900-1913

Timothy Leunig1 DepartmentofEconomics, Nuffeld College UniversityofOxy½rd

It is never difficult to defend an interest in the cotton industry,for it has a uniqueplace in the historyof '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 ] 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 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 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Dunlavy, Charles Feinstein, and James Foreman-Peck for helpfulcomments, and James Cotton for allowingme to usehis unpublished thesis.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 '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 .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 accused of 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 , 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 theconservatism of 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: raw cottoninto ,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 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 ,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 [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 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 otherfour 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 average piece 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 yarn 60 miles,and half had to moveit onlya fewyams, only half wouldhave been constrained in theirchoice of technology. Clearlyour knowledgeof the differentcost advantages of ringsand mulesis not preciseenough for us to calculatethe exactdistance between spinnerand weaver just sufficient to renderrings uneconomic. But datafrom the !906 Enquiryinto the Earnings and Hours of Labour in theTextile Trades allows us to calculatethe proportionof yarnthat couldhave been woven very close to the spinner- that is, the proportionfor whom transportcosts were unimportant. It is worth investigatingthe accuracyof the 1906Enquiry before we begin.In 1906the Boardof Tradesent 2,329 detailed schedules to firmsin the cottonindustry, not includingbleaching and œmishing œm'ns [1906 Earnings and Hourst•nqui•y, 1909, p. 241].Of these,967, or 41.5%,were returned, covering some40.7% of all cottonoperatives listed in the 1904Factory and IVorkshop Returns[1906 Earnings and Hours Enquiry, 1909, p. xiii].The closenessof these two percentagessuggests no samplebias toward either large or smallfirms. As virtuallyall the firms surveyedwould have had eitherspinning or weaving departments,or both, our samplealmost certainly includes data from all the 900 or soLancashire firms who respondedto theEnquiry. Cruciallyfor our purposes,we also know that the firms replying representa geographically unbiased sample of theindustry, suitable for district- basedanalysis. From Worrall'sDirecto.•y of Lancashire,Fatale finds that the spinningdistrict - comprisingthe Oldham,, Ashton, Leigh, Stockport, ,and Rochdale districts in the 1906Enquiry - contained82.8% of all spindlesin 1896,with the weavingdistrict - comprisingthe Accrington, Bacup,Blackburn, Burnley, and Preston districts in the 1906Enquiry - con- raining66.4% of all [Farine, 1979, p. 334]. On the basisof our results, givenin Table1, we repeatthis calculation for 1906,and find that the spinning districtwas responsiblefor 79.9% of all yarn output(cf. 82.8%), with the THE MYTH OF THE CORPORATE ECONOMY / 57 weavingdistrict containing 66.7% of all looms(cf. 66.4%). The closenessof our resultswith those of Farnie givesus considerableconfidence in the reliabilityof ourestimates. As thegnqui{y itself notes, "the returns for eachof the differentindustries included may be regardedas coveringa sufficiently largeproportion of the work peopleemployed to yield soundstatistical results"[1906 gamings and Hours Enqui{7, 1909, p. xiv]. The 1906]•nqui{y divided Lancashire into twelvenamed districts (and "other"),giving employment and wageinformation on each.That data is sufficientlydetailed for us to be ableto calculateboth the amountof coarse yarnspun in eachdistrict and the local weaving capacity. Comparing the two figuresallows us to seewhat proportion of coarseyarn could have been spun withinany area. As we shallsee, the districtswere small enough that spinners whose yarn could have been woven within their districtneed not have concernedthemselves with transportcosts. We haveemployment data on almost10,000 mule spinners,almost 4,000ring spinners,and over 70,000 weavers. The dataon mulespinners is sub-dividedaccording to whetherthey spun sub-40, 40-80, or countsof over 80. Of course,we are not interestedin employment,but in yarn ou•outand weavingcapad•y for eacharea. As we areinterested in theproportion of yarn that couldhave been spun locally, we arenot forcedto convertto outputin yards, but are able to use more tractable index numbers. We beginwith weaving.The employmentdata for weaversalso gives the numberof looms tendedby eachweaver. Multiplying the two figures togetherfor eacharea gives the numberof loomsin that area- that is, its weavingcapacity. We usethis measure - one"loomsworth" of yarn- as our numerairegood, and adjust the spinningtotals accordingly. Convertingemployment figures into outputfigures for both muleand ringyarn is not as straightforward.The outputof a muledepends on three factors:the numberof spindlesin eachmule, the amountof yarn spunper cycleof the mule,and the time takento completeone cycle.As thereis no evidencethat the number of spindlesin a mulevaried with the countspun, we follow the literaturein assumingthat all muleshad an equal number of spindles[Sandberg, 1974, p. 29;Lazonick, 1981, p. 99].The amountspun per cycleis equallysimple to calculate:speed figures were alwaysquoted for a standardizedcycle. But mules spinning coarse counts operated at considerably higherspeeds. These are given by Jewkesand Gray andallow us to construct our employment-outputconversion factors for mule spinning[•ewkes and Gray,1935, pp. 70, 209]. The conversionfactor for ring spinningis calculatedby adjustingthe conversionfactor for coarsemule spinning to reflectthe factsthat onering produced1.45 times as much yarn per houras did one mule spindle, and that eachring spinnertended an averageof just638 spindlesrather than the 2,064 tendedby thetypical mule team [Taggatt, 1923, pp. 155,203; Jewkes and Gray, 1935,pp. 126,205; 1906gamings and Hours Enquiry, 1909, p. 31]. Finally,we scaleboth employment-output conversion factors so that the total yarn output 58 / TIMOTHY LEUNIG equalsthe totalweaving capacity, taking into accountthat 13% of yarnwas exportedas yarn rather than being woven into cloth[Robson, 1957, p. 345].It is worthnoting that this whole process is highlyrobust: no reasonableset of conversionfactors alters the finalresult by morethan 1 percentagepoint. The resultsare given in Table1. T•ble 1:Output of Sub-40Yarn and Weaving Capacity in Lancashire,by District 2 3 4 5 6 7 8 Ring Sub-40 Total Total Weaving Local % of sub-40 output mule sub-40 yarn capacityweaving "woven District outputoutput output potential locally" Oldham 7,317 51,670 58,987 86,048 3,960 3,960 7

Ashton 2,662 19,935 22,597 33,404 12,003 12,003 53

Stockport 4,643 10,910 15,553 20,478 10,266 10,266 66

Rochdale 12,359 11,197 23,556 29,259 35,400 23,556 100

Bacup 3,858 4,997 8,855 8,855 16,214 8,855 100

Blackburn 3,119 14,389 17,508 19,095 48,775 17,508 100

other 3,647 1,334 4,981 5,487 6,763 (0) (0) Total 46,247124,792 171,040 283,852 246,951 95,150 55.6 Excludingintegrated plants 118,861231,674 194,773 43,980 37.0 Source:1906 Enqui{y Note:All figuresare in "loomequivalents"; figures may not sumdue to rounding. By comparingthe amountof sub-40yarn produced in a districtwith the weavingcapacity m thatdistrict, we areable to judgethe importance of transport costsas a constrainton thebehavior of spinnersin thatarea. Column seven gives theminimum of sub-40yarn spun and weaving capacity, that is, the amountof sub-40yarn that could have been woven locally; column eight expresses this as a percentageof the totalsub-40 yarn spun in thatarea. It showsthat the majority (56%)of sub-40yarn, that is, a majorityof yarnsuited to ringspinning, could havebeen woven within the districtin whichit wasspun. Whilewe knowthat these districts were not large,we wouldlike to go furtherand statethe numberof weavingmills within a certaindistance of each spinningmill. Althoughthe 1906Enquiry does not allowus to do this,an extremelydetailed case study of Blackburndoes give this information. In his unpublished1970 thesis,J.R. Cotton providesdetailed and systematicinformation on thechanging structure of industryand employment in the CountyBorough of Blackbum[Cotton, 1970]. Using the recordsof the Blackbumand District Textile Manufacturers' Association, he is ableto identify THE MYTH OF THE CORPORATE ECONOMY / 59 fully132 mills in operationin Blackburnin 1919,and to statewhether they were spinners,weavers, or integratedspinner-weavers at that date.Even more usefully for our purposes,he is ableto exactlylocate 118 of thesemills: 8 spinners, 104weavers, and 5 integratedfirms, which he places on a largescale map, part of whichis reproducedas an appendix.From thismap we are ableto calculate predselythe number of weavingfirms close to eachof theeight spinning firms. The resultsare given in Table2. Table2: GeographicalProximity of Spinnersand Weavers, Blackburn Numberof weavingmills Numberof weavingmills within300 yards withinhalf a mile AlstonMill Company 7 26

DaisyfieldRing Mill Co. 10 31 j Hoyle& Sons 5 29

LittleHarwood Combing 10 31

Average 7.375 28.25 Source:Cotton (1970), Map 1.5. Note: All distances are direct.

It is clearfrom thistable that no Blackburnspinner would have had to concernhimself with the costsof transportingyam to a weaver.The average spinnerhad seven specialist weaving mills within 300 yards of hismill, and more than two dozen within half a mile. Thisresult is applicablemore widely. Cotton demonstrates that the three principaldeterminants of mill locationin Blackburnwere proximity to canals, rivers,and "A" roads,among them explainingthe locationof at leastthree- quartersof all mills.Following the decline of waterpower, the two singlemost importantfactors determining location are good water supply and good drainage, factorsthat were important to all cottonmills, and always led to the clustering patternseen in Blackburn. We do not have evidence of the same caliber for other textile towns. Nevertheless,contemporary telephone directories allow us to locatea consid- erablenumber of cottonmills [National Telephone Company's Directory]. The firmslisted in thetelephone directory are unlikely to be an unbiasedsample in termsof size:larger firms will be morelikely to possessa telephone than smaller firms.This also implies an overweightingof spinners relative to weaversin our sample.But there is no reasonto expectthe firms listed to bea biasedsample in termsof location.The 1907telephone directory lists 63 cottonmills in Rochdale, of which42 couldbe located. Of these24, or 57%,were to be foundin thevery centerof Rochdale,in an areaof lessthan 2.5 squaremiles. In neighboring Heywoodall 17mills that could be located were clustered within one square mile. Clearlythe found for Blackburn holds more widely. 60 / TIMOTHY LEUNIG

We have now establishedthe two facts necessaryto evaluatethe importanceof transportcosts on the slowrate of tingadoption in Lancashire. The 1906Enquiry shows that there were sufficient weavers in allbut threeof the districtsfor all spinnersto havehad all theirsub-40 yam wovenlocally. And detailedwork on Blackburn,reinforced by datafrom contemporarytelephone directories,shows that distances between mills within a localitywere very small. Onlyin Oldhamis it correctto thinkof allspinners a transportpremium. We havesho wn that56% of coarseyam could have been spun locally. As we notedabove, the transportcost premium applies only to weft, and not to warpyam. So all warp and 56% of coarseweft producers could have opted for tingswithout suffering additional transport costs; that is, transportcosts were insignificantin 78% of thecases. Thisresult is importantfor ourunderstanding of theLancashire cotton industry.Lazonick alleges that transportcosts were sufficientto deter the adoptionof tingsin Lancashire.This work has shown that, while this is correct for Oldham,Oldham is atypicaland evenunique. Transport costs were of no importanceto spinnersin eightof thetwelve districts of Lancashire.While we mightaccept that the transport costs associated with tings did deter spinners in Oldham- whichhad a peculiarlylow rateof tingadoption, as Table 1 shows- theycould not havedeterred spinners elsewhere. There is no sense,therefore, in whichtransport costs can be saidto representthe "primary constraint on the introductionof ringspinning in Lancashire"[Lazonick, 1983, p. 205].As such, thereis no evidencethat Lancashire'svertically specialized form of industrial structureslowed down its rate of technologicalchange. Rather, through close proximityof spinnersand weavers,Lancashire was able to combinethe advantagesof integrationwith thoseof competition.

A Model of TechnologicalChoice

District-leveldata for Lancashireallows us to go furtherthan simply assessingthe validityof the transportcost argument: it allowsa muchmore preciseassessment of the rationalityof Lancashire'scotton spinners than was previouslypossible. The usualmethod of assessingrationality is to calculate factor costsfor the two ,and then judgewhether the observed investmentbehavior is broadlyconsistent with thosecosts. But as we have seen,different areas faced radically different transport costs. As such,industry- wide assessmentsof factorcosts and ring adoptionare unlikelyto be an accuratetest of rationality.Instead, we are able to test the rationalityof Lancashire'scotton spinners by lookingat whetherthe variationsin factor costsat a districtlevel explain the variationsin the adoptionof ringsacross Lancashire. We notedearlier that therewere three possible cost differentials that a spinnerwould have to considerwhen deciding on installingrings or mules.Of these,two - the laborcost differential, and the transportcost premium when applicable- mightvary by district,but the third- the costof longerstaple THE MYTH OF THE CORPORATE ECONOMY / 61 cottonneeded to userings successfully - would be constantacross Lancashire. We thereforedisregard the additionalcost of raw cotton as a variable determiningthe rate of ringadoption by district. The modelpostulates that if Lancashire'scotton spinners were rational in theirchoice of technology,the proportion of ringsin the machinerystock will be positivelyrelated to the laborcost saving available in that areaand negativelyrelated to anytransport cost that would have had to havebeen paid. The directionof causalityis clear.Individual firms were small; their choice of technologywould not haveaffected wage rates. Similarly, while transport costs were endogenousin so far as fixmscould relocate, once location had been selectedtransport costs were exogenous. The 1906Enquiry gives district-level data for the wagesof 25,000mule spinnersand piecers[1906 Earningsand Hours Enquiry, 1909, p. 29]. By combiningthis with standardand reliableinformation on the numberof spindlesin newmules [[ewkes and Gray, 1935, p. 205]and on productivityper spindle[Taggatt, 1923, p. 155]we constructmule spinning unit laborcosts by districtfor an arbitrarybut standardcount of 32. We followexactly the same procedurefor ringspinning. 1906 Enquiry data on almost4,000 ring spinners [1906Earnings and Hours Enquiry, 1909, p. 31] is combinedwith dataon the numberof spindlestended by thosespinning count 32 yarn[[ewkes and Gray, 1935, p. 126; 1906 Earningsand Hours Enquiry, 1909, p. 13], and on the productivityof ringsat thatcount [Taggatt, 1923, p. 203]. Unfortunately,Accrington has no ringspinners, Burnley no coarsemule spinners,and Leigh no coarsespun yarn at all, which preventsus from assessingthe laborcost premium for theseareas. We are thereforeforced to dropthese three districts from our analysis.The lossis not important:these threedistricts account for lessthan 2% of coarseyarn output. Transportcosts are very straightforwardto assess.We havealready discoveredthat Oldham did not have the weaving capacity to weave93% of theyarn that it spun;similarly, Ashton could not weave47% of its yarn,and Stockport34% of itsyarn. This yarn would have had to be "exported"to other districtsto be woven.We knowthat Rochdale, Accrington, Bacup, Preston, Blackburn,and Burnley had more weaving than spinning capacity; they must have"imported" yarn from Oldham, Ashton, and Stockport. We assumethat yarnwas exported to eachof the sixweaving towns in accordancewith their spareweaving capacity. Thanks to detailedgovernment regulation of the industrywe knowboth the exact distance, by rail,between any two placesin Lancashireand the costs for anygiven journey - thatis, we knowthe cost of shippingyarn from each spinning town [Railwqy and Canal Yraffc Acts, 1888, 1892,1894, 1913]. We multiplythis by the proportionof yarnthat had to be shipped- 93%, 47%, and 34% respectively - to give us the transport premium. Finally,we use Table 1 to assessthe proportion of coarseyarn that was spunon ringsin eachdistrict. We usethis as our dependentvariable. Both dependentand independent variables are reproduced in Table3. 62 / TIMOTHY LEUNIG

Table $: FactorCost Differentials and the Choiceof Technology,by District Ringoutput / Laborcost Transportcost Net factorcost ring+ mule savings premium advantage Disthct output (C/lb.) (C/lb.) (C/lb.) Manchester 0.60 0.34 0 0.34

Bokon 0.48 0.33 0 0.33

Stockport 0.29 0.26 0.15 0.12

Blackburn 0.17 0.05 0 0.05

Ashton 0.11 0.30 0.19 0.11 Sources: See text. Notes:All figuresapply to sub-40yarn only. There are severalpoints that we shouldnote concerningthe data. First,the fact that mulesaccount for at least40% of outputin all areasis an artifactof thedata: itdoes not indicatethat 40% of coarsespinners in all areas continuedto selectthe mule in preferenceto thering. Instead, it is causedby a combinationof our data referringto stocksof machineryand the sheer longevityof Britishtextile machinery: the mule lastedan averageof some 50 years[Saxonhouse and Wright,1984, p. 508;Lazonick, 1984, p. 394]. If, with the rest of the industry,the sub-40spinning sector grew by one-third between1880 and 1906,then around40% of the spindlesin placein 1906 wereinstalled prior to 1880,that is, priorto theinvention of thering [Robson, 1957,pp. 332-3].As a resuk,even were Lancashire spinners to haveselected the ting withoutexception after 1880,only around60% of the industry's outputin 1906 wouldhave been spunon tings:effectively our dependent variablehas an upperbound of 0.60.This figureis, of course,an averagefor Lancashireas a whole:if one districtwas growing faster than the industry average,or hada higherthan average number of spindlesdue for replacement after1880, rings could form a higherproportion of totaloutput than 60%. In addition,we wouldexpect some furms to installmules even in areas wherethose installing rings stood to benefitfrom a relativelylarge labor cost differential.These would be fkrmswho exported their yarn to othercountries - andwho effectivelyfaced a massivetransport cost premium if theymoved to rings.Although the vastmajority of Lancashire'syarn was woven into cloth withinthe county, fully 13% was exported [Robson, 1957, p. 345].Again, if we assumethat the exportingsector grew at the samerate as the industryas a whole,our dependent variable for Lancashireas a wholewould be boundedat 0.60 less13%, or around0.52. Further,even in areasin which the averagefirm faceda substantial transportcost premium, not eye{7firm would have had to paysuch a costwere theyto adoptrings. Even in Oldham7% of spinnerswere able to havetheir THE MYTH OF THE CORPORATE ECONOMY / 63 yarnwoven locally, and were therefore able to takeadvantage of thelabor cost savingwithout paying the transportcost premium. Similarly in Ashton53% andin Stockport66% of spinnerswould have been able to disregardtransport costswhen making their technological choice decision. It is not correctto view all fro'nsin onearea as facing exactly the sameconditions. One implicationis thatif spinnersare rational we wouldexpect a positivetake-up of ringsin any areain whichthe hbor costsavings are positive, because all areascontained at leastsome firms for whom transportcosts were not an issue.Equally we wouldexpect the rate of adoptionto be lowerin areaswhere some fro'ns face a transportcost premium than in areaswhere no firm facessuch a costpremium on rings. Finally,we needto be realisticas to how muchof the variationin the machinerystock in 1906can be explainedby factorcosts in oneyear alone: factorcosts would have varied slightly over the years between 1880 and 1905. Butwith labor costs determined by wagelists, and railway charges ossified by governmentregulation, these are not largeconcerns. Naturally, we wouldalso prefer to have more than 9 observations,but the individualreturns for the 1906Enquiry - coveringover 900 fzrms- weredestroyed to preserveconfi- dentiality.Despite these reservations it is clearthat the model performs well.

proprings = -1.7 + 5.361absav - 5.80transprem in( ) 1 - proprings (0.4703) (1.9832) (1.0953)

Standarderrors are given in parentheses,adjusted R2 = 0.76548,F = 14.05631 There are three conclusionsthat we can draw from this model. First, thestandard errors are all low, telling us that spinners definitely responded to thefactor costs that they faced. Second, the co-efficients on thelabor saving and the transportpremium variables are very close, implying not justthat spinnerswere responding to factor costs but that they were responding closely and accurately.A 1% fall in transportcosts would have led to the same increasein ringtake-up as a 1% risein thelabor cost advantage. Finally, our high R2 showsthat factorcosts were indeedthe primarydeterminant of technologicalchoice, accounting for overthree-quarters of the variation in the dependentvariable. Thedata assembled and the model derived from it showthat even tiny variationsin factorcosts across the different districts - equivalentto just2% of thefinal selling price of yarn- couldcause the rate of ringadoption to vary from 11%to 60%.Such a determinationto respondto eventhe smallestcost advantagesuggests that the Lancashire cotton spinner, far from being irrational in hischoice of technology,was an economic optimizer of textbookquality. In one sensethis oughtnot surpriseus, for the Lancashirecotton spinning industrywas as close to a textbookdefinition of perfectcompetition as any manufacturingindustry has ever been: 900 or sofirms located in closephysical proximity,with free entryand exit into the industryand low sunkcosts, producinga homogenousgood and supplying the majorityof cottongoods 64 / TIMOTHY LEUNIG soldin theworld's non-tariff protected markets, and fully open to competition from importsin the homemarket. In sucha marketthere is no room for sentimentalityor technologicalconservatism.

Conclusions

This paperyields two main conclusions.First, and contraryto the institutionalcritique, it seemsclear that the extremelevels of vertical specializationin Lancashire did theindustry no harm.Factor cost advantages, not transportcost constraints, led Lancashire'sspinners to selectthe muleso muchmore often than their competitors.And second,the intensedegree of horizontalcompetition forced spinners to selectthe machinery most suited to their situationwith an impressivedegree of precision.We shouldsee this periodnot asLancashire in decline,but asLancashire at its zenith.

Glossary

Bobbins are cylindricalbarrels of placedover ring spindles.Yarn is attachedto thebobbin. When spinning is complete,the yarn and bobbin are removedas one, and cannot be separatedwithout rewinding the yarn. Copsare smallpackages of yarn.When mule yarn is spunit formsa cop on thespindle: that is, the yarn can be liftedfrom the spindle as a packagemade up entirelyof yarn.It is light and easyto transport:"a mule cop is like a goodsoldier always ready to go anywhere"[Whittam, 1907, p. 32]. Count describesthe finenessof the yarn.One poundof count40 yarnwould contain40 hanksof yarn.A highcount indicates a fineyarn. Mule spinningwasinvented by SamuelCrompton in 1779,and combined the advantagesof Arkwhght'swater frame with thoseof Hargreaves'.The "self-acting"mule was designed by RichardRoberts in the mid- 1830s,and was improveduntil at leastthe 1880s.It is an intermittent spinner,i.e. it impartstwist to the yarnand winds it as two separateactions. This makesit gentleron the raw cottonallowing the spinnerto economize on raw cotton, but it did demand skilled labor. It was the most common form of spindlein Britaineven in the 1950s. Piecerswere assistantsto mulespinners. In Lancashireeach mule spinner had anadult big piecer and a morejunior litfie piecer; in New Englandeach mule spinnerhad just a bigpiecer. Raw cotton arrivedas balesof tangledfibres, whose quality and valuewas measuredin a numberof ways,most important of whichis the lengthof fibre,or .It is alsocalled cotton wool. Ring spinning was developedfrom the throstle,a compactversion of Arkwright'swater frame, and perfected in the UnitedStates by 1880.It wasa continuousspinner, spinning and windingyarn onto a woodenbobbin simultaneously.Its adoption in the UnitedStates was rapid, all but replacing themule by 1913,but wasmuch slower in establishingitself in Britain. THE MYTH OF THE CORPORATE ECONOMY / 65

Cotton'sMap of Blackburn 66 / TIMOTHY LEUNIG

Rovingconsists of rawcotton just prior to spinning.It is a longloose sliver of cottonwool, Lightly twisted. Spinningis theprocess by whichthin strandsof elongatedroving are twisted to makeyarn. Spinning is madeup of two actions:imparting twist to the rovingto makeit into yam, and windingthe newlyspun yarn into a convenientpackage, either onto a spindleas a cop,or ontoa bobbin.There aretwo principaltypes of spinrang:mule spinning and ting spinning.Earlier methods,such as the spinningjenny and the throstlehad beensuperseded by thisperiod; the currentmethod, open end spinning,was not introduced untilthe 1960s,although the basic principle by whichit workswas known in the earlynineteenth century. Staplelength describesthe length of eachof the fibersof rawcotton, prior to spinning.It is the mostimportant factor determining the valueof the raw cotton. Warpyarn is the yarnthat is heldin positionduring weaving. It has to be slightlystronger than weft. It is sometimescalled twist yarn. Weavingdescribes the process by which yarn is madeinto cloth on a . Weft yarn is the yarn that is placedin a shutfieand shot back and forth betweenthe warp in orderto makecloth. It is sometimescalled woof yarn or filling. Yam describesthe cottonafter it has been spun.The finenessof yarn is measured in counts. Yarn is sometimes called .

References

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