Mechanization, Transportation, and the Location of Industry in Germany 1846-1907

Mechanization, transportation, and the location of industry in Germany 1846-1907 Theresa Gutberlet Abstract of Dissertation at the University of Arizona Defended on May 2, 2013 June 7, 2013 1Introduction This dissertation investigates the question: why do some regions industrialize and others do not? The large variation in the timing and success of industrialization across countries and across regions within these countries suggests that some places had and still have better conditions for industrial development than others. Debates about this variation in industrial development have identified natural resource endowments, relative factor prices, the quality of political institutions, entrepreneurial attitudes, and agricultural productivity as key factors for industrialization. Allen (2009) argues that the British Industrial Revolution was the result of high wages and cheap coal, which led to investment in labor saving technologies. Clark (2008) proposes changes in the reproductive pattern as the reason for British productivity growth after 1800. Mokyr (2009) and McCloskey (2010) emphasize the role of a radical shift in scientific thinking and its application to business as the explanation for rapid technological progress. Most studies about industrialization focus on the early success ofBritainrelativetocontinentalEu- rope, the United States, and Asia. This dissertation takes a different approach by comparing regional industrial development inside Germany. The motivation for this approach is threefold. German manufacturers adopted British innovations during the first wave of industrialization in the second half of the 19th century, so the country serves as an example of successful catch-up. I compare the development of regions within Germany because economic conditions and explanatory factors like natural resource endowments often differ considerably across relatively small areas within countries. For example, the three provinces of Silesia, Westfalia, and the Rhineland produced 81.5 % of German coal output in 1850 while accounting for less a 12 percent of the country’s landmass (Fremdling, 1995). Comparing the industrial development in these provinces to that in other areas of Germany can help to answer 1 the question: how much did coal matter for industrialization? Lastly, industrialization led to signif- icant changes in the regional concentration of industries. For example, Rosés (2003) points out that between 1796 and 1860 Catalonia increased its share of Spanish manufacturing from 12 to 25 percent, while Castile and Northern Aragon lost half of their shares. As Rosés demonstrates for Spain, study- ing changes in industry concentration can help us to understand the role of scale and agglomeration economies in economic development. The observation that motivated this dissertation is Tipton’s (1976) account of the Poensgen machinery firm moving from the Eifel mountains to Duesseldorf in the 1860s after failing to secure a railroad connection to the coal fields in the Ruhr area. Once an important center of metal production the Eifel not only stagnated in the 19th century but lost much of its industrial employment. Its story suggests that access to coal had become an important factor for the location of industry by the middle of the 19th century. The concentration of accessible coal deposits in central Germany might therefore explain why coal-rich regions like the Ruhr area gained industrial employment in large numbers while other areas in Germany lost traditional manufacturing centers. The example of the Poensgen firm also indicates that the railroad boom in the second half of the 19th century played an important role in improving access to resources for regions without coal or mineral endowments. The literature about German economic history emphasizes the large regional variation in industrialization, but many studies focus on the institutional factors that can explain these differences. Before unification in 1871 the German Empire was a confederation and trade union of independent kingdoms, duchies, and cities with their own citizenship and trade regulations (Blackbourn, 2003). Gerschenkron’s (1966) study of the Junker landlords is maybe the most famous account of the large estate system in East Prussia and its negative impact on political and economic development. In contrast, feudal bonds had mostly disappeared from agriculture in western German states by the 16th century. Within manufacturing, guilds controlled employment and trade in the southern kingdoms of Bavaria and Wuerttemberg until 1848 and 1864. Ogilvie (2004) connects the strict control exerted by these institutions to the economic stagnation of southern Germany in the 18th century. Prussia on the other hand had abolished the craft and trade associations when it adopted the Napoleonic Code in 1810 (Breuilly, 2003). While the legacies of these institutions certainly influenced economic development in the 19th century, they cannot explain the large variation in manufacturing growth across relatively small regions within the same state. The goal of this dissertation research is not to refute the importance of institutional factors for industrialization, but to make the argument that technological change would have led to regional imbalances in Germany even if the country had had a much more homogeneous institutional background. In order to study the impact of technological change on regional development I draw from the theories of industrial location by Krugman (1991b), Glaeser (2008), Marshall (1920), and others who explain the development of cities and regions in response to economies of scale and agglomeration, access to natural resources, and transportation costs. The central argument is that the adoption of 2 steam powered machinery created incentives for manufacturers to concentrate production in central areas and around coal fields. The railroad boom lowered the costs of regional trade and thereby made it feasible to serve distant markets from these central locations. To test these arguments I create a new data set of power use and district-level employment in different manufacturing industries from the censuses of the German Zollverein in 1846 and 1861 and the censuses of the German Empire in 1875, 1882, 1895, and 1907. The data set covers up to 84 districts (Regierungsbezirke), which were the second lowest administrative units of the German states with an average population of approximately 500,000 people. This is an important point because I measure industrial development as growth in manufacturing employment, which is only sensible for spatial units that are large enough to have a mix of employment in different sectors. The panel structure of the data together with the relatively low level of spatial aggregation make it possible to detect and investigate changes in the location and spatial concentration of industries. The data are combined with GIS infor- mation about the location of navigable waterways and railroads (Kunz and Zipf, 2008), which allows me to measure regional factors for industrial development like the costs of shipping coal from mining areas to manufacturing districts. 2MechanizationandthespatialdistributionofindustriesintheGer- man Empire 1875 to 1907 In the first chapter I focus on the transition from water to steam and later electric power and its impact on the regional concentration of manufacturing. Water powered establishments were constrained by the requirement to locate on streams with sufficient power for their operation (Haberstroh et al., 1907). In addition, the use of water power created potential for conflicts between neighboring plants. A new establishment could diminish the power that was available to neighbors if its gates created enough backwater to interrupt upstream wheels. Similarly, downstream wheels could be hurt by water storage, if they required a bigger flow than was permitted by an upstream dam. Evidence that such conflicts existed in Germany comes from the Guldenbach in the Hunsrueck Mountains where at least sixteen neighboring ironworks fought repeatedly over water rights during the second half of the 18th century (Schmitt, 1961). The example of the Ising company in Bergneustadt shows that similar conflicts continued into the early 20th century (Nicke, 1999). The transition from water wheels to steam engines in the 19th century ended this potential for conflict among neighbors and introduced new incentives for manufacturers to form industry clusters. The use of steam power created dependence on coal, which was expensive to transport and therefore encouraged the concentration of manufacturing plants in coal mining regions. Previous research about German industrialization has pointed out the importance of coal deposits for the location of heavy industry, where coal replaced charcoal as the standard fuel (Kiesewetter, 2004). However, few studies discuss the 3 role of coal mining for the location of light manufacturing. A growing literature about the economic geography of industrialdevelopmentconsidersaccesstocoalasonefactorforregionalmanufacturing activity. Crafts and Mulatu (2006) and Ellison and Glaeser (1999) show that industries with high steam power use and, more generally, high coal consumption locate in regions with low coal prices. However, similar studies that investigate different countries and periods do not find this relationship (Klein and Crafts, 2012), (Wolf, 2007). In contrast to previous studies, this research compares the use of different power sources to draw con- clusions about how the transition

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