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Industrial Organization and Technological Change: The Decline of the British Cotton Industry*

Published online by Cambridge University Press:  11 June 2012

William Lazonick
William Lazonick
Affiliation:
Associate Professor of Economics, Harvard University
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Abstract

In this important study Professor Lazonick provides an astute reappraisal of why Britain's once dominant economy has failed to meet the challenges of international competition in the twentieth century. The vehicle for his discussion is cotton manufacture, the industry which, through the technological and commercial innovations of the late eighteenth and early nineteenth centuries, made Britain the leading industrial power. Among Dr. Lazonick's questions are why did Britain's preeminance in this industry come to an end? Why did technological innovation yield to stagnation? Why did inefficient modes of economic organization persist in the face of manifest inadequacy? And what does the history of this industry have to teach us about recent economic theory?

Type
Research Article
Information
Business History Review , Volume 57 , Issue 2: British Business History , Summer 1983 , pp. 195 - 236
Copyright
Copyright © The President and Fellows of Harvard College 1983

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References

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69 Wisselink, “Present Condition,” p. 159.

70 Economist, October 8, 1932, p. 635; Hannah, Rise, pp. 84–85; Lucas, Industrial, pp. 156–159; Kirby, “Lancashire Cotton,” p. 152.

71 Pollard, Development, p. 122. The purpose of the Lancashire Cotton Corporation was not to reduce surplus capacity in the cotton industry as some have argued. See e.g. Furness, G.W., “The Cotton and Rayon Textile Industry,” in Burn, D. (ed.), The Structure of British Industry (Cambridge, England, 1958), pp. 187–188Google Scholar; and Kirby, “Lancashire Cotton,” p. 151. Rather its purpose was to salvage the financial investments of the bankers which inevitably involved some scrapping of the least serviceable machinery in the plant acquired. That the founders of the L.C.C, intended in 1929 to scrap about half of the Corporation's spindleage capacity over the next decade is by no means evident.

72 Federation of Master Cotton Spinners' Associations, Cotton Spinning Industry Bill (1935): The Industry's Case for the Bill (Manchester, 1935), p. 2.Google Scholar

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77 Miles, C., Lancashire Textiles: A Case Study of Industrial Change (Cambridge, England, 1968), pp. 38–39.Google Scholar See also Shaw, D.C., “Productivity in the Cotton Spinning Industry,” The Manchester School, Vol. XVIII, No. 1, (June 1950).Google Scholar

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79 Productivity Team Report, Cotton Weaving, p. 16.

80 Miles. Lancashire, p. 26.

81 Ibid., p. 68.

82 Lucas, Industrial Reconstruction, p. 159; Clay, Report, p. 68; Vitkovitch, “U.K. Cotton,” p. 262; Ormerod, “Prospects,” p. 14; UTFWA, Plan, p. 16. See also, Vibert, F., “Economic Problems of the Cotton Industry,” Oxford Economic Papers, N.S., Vol. 18, No. 3, (Nov. 1966).Google Scholar

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93 For an elaboration of this theme, see B. Elbaum and W. Lazonick, “The Decline of the British Economy: An Institutional Perspective,” Harvard Institute of Economic Research Discussion Paper No. 878, January, 1982.

94 Coase, R., “The Nature of the Firm,” Economica, N.S. Vol. IV, (November 1937)Google Scholar; reprinted in Stigler, G. and Boulding, K. (eds.), Readings in Price Theory (Chicago, 1952).Google Scholar Over three decades later, Coase argued quite correctly that “modern economists writing on industrial organization have taken a very narrow view of their subject,” and he specifically criticizes the work of Joe Bain, Richard Caves, and George Stigler for treating the study of industrial organization as simply applied price theory. Coase, R., “Industrial Organization: A Proposal for Research,” in Fuchs, V. (ed.), Economic Research: Retrospect and Prospect (New York, 1972), Vol. III.Google Scholar “What one would expect to learn from a study of industrial organization,” Coase argues, “would be how industry is organized now, and how this differs from what it was in earlier periods; what forces were operative in bringing about this organization of industry, and how these forces have been changing over time; what the effects would be of proposals to change, through legal actions of various kinds, the forms of industrial organization.” Ibid., p. 603. Indeed, Coase claims that such issues had been his prime concern when he wrote “The Nature of the Firm” in the 1930s. Coase's latter-day critique of the neoclassical approach is well-taken, but he seems oblivious to his own important role in bringing the study of “the nature of the firm” into the ahistorical neoclassical perspective of constrained optimization. After all, the central analytical point of Coase's 1937 article was the notion that “substitution at the margin” can explain both horizontal combination and vertical integration. “A firm can expand in either or both of these ways,” he argued there. “The whole of the “structure of competitive industry” becomes tractable by the ordinary technique of economic analysis.” Coase, “Nature”, p. 398.

95 Ormerod, “Prospects,” pp. 10–11. See also U.S. Productivity Team, British Cotton, p. 6; Miles, Lancashire, p. 56; Furness, Cotton,” pp. 214–217.

96 Chandler, The Visible Hand, Parts II-IV.

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99 Quoted in Ibid., p. 424; see also Pennington, “Competition,” pp. 213–228.

100 Streat, “Cotton industry,” p. 14; see also Robson, Cotton Industry, pp. 215–216; Daniels and Campion, “Cotton Industry,” p. 342.

101 See note 18; Miles. Lancashire, p. 68. In 1965 there were still 1000 merchant-convertors in the industry. Alfred, A.M., “U.K. Textiles — A Growth Industry,” Transactions of the Manchester Statistical Society. 1965–1966, P.9.Google Scholar

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103 Chandler, A., Strategy and Structure (Cambridge, Mass., 1962)Google Scholar; Chandler, Visible Hand, Part V.

104 Chandler, “Growth of the Transnational”; see also Hannah, L., “Managerial Innovation and the Rise of the Large-scale Company in Interwar Britain,” Economic History Review, Vol XXVII, No. 2, (May 1974), pp. 252–270CrossRefGoogle Scholar; Mathias, P., “Conflicts of Function in the Rise of Big Business: The British Experience,” in Williamson, H. (ed.), Evolution of International Management Structures (Newark, Delaware, 1975).Google Scholar

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106 Streat, “Cotton industry,” p. 7.

107 Fabian Research Group, Cotton, p. 13n.

108 Miles, Lancashire, p. 74.

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115 Ibid., p. 297.

116 Ibid., pp. 313–314.

117 See e.g. CFT, 16 January 1885 for a specific example.

118 Frankel also argues that the Lancashire weaving industry had little opportunity for modernization because the industry grew little after 1900. But see the data in Jones, Increasing Return, p. 277.

119 Schumpeter, J., The Theory of Economic Development (New York, 1961), p. 60n.Google Scholar On these issues, Schumpeter finds himself drawn to Marx's theory of capitalist development, but, as he humbly notes, “my structure covers only a small part of his ground.”Ibid.

120 See McCloskey and Sandberg, “From Damnation.” See also the collection of essays in McCloskey, D. (ed.), Essays on a Mature Economy: Britain after 1840 (London, 1971)Google Scholar and Harley, C., “Skilled Labour and the Choice of Technique in Edwardian Industry,” Explorations in Economic History, Vol. II, No. 4, (Summer 1974), pp. 391–414.CrossRefGoogle Scholar In what follows, I shall be concerned only with the theoretical merits of the work of the “new” economic historians. For a critique of Sandberg's quantitative efforts, see Lazonick, “Factor Costs.”

121 McCloskey and Sandberg, “From Damnation,” pp. 91–94.

122 Ibid., p. 108. This view has begun to gain acceptance in the textbooks. See e.g. Payne, P., British Entrepreneurship in the Sineteenth Century (London, 1974), pp. 48–51Google Scholar: Musson, A., The Growth of British Industry (New York, 1978), p. 163.Google Scholar For a critique, see Kindleberger, C., Economic Response (Cambridge, Mass., 1978), ch. 7.CrossRefGoogle Scholar

123 McCloskey and Sandberg, “From damnation,” p. 108.

124 In McCloskey (ed.), Essays, p. 241.

125 Ibid., p. 243. This approach is explicit in Sandberg, Lancashire, ch. 2–A, and implicit in Harley, “Skilled Labour,” and McCloskey, D., Economic Maturity and Entrepreneurial Decline: British Iron and Steel 1870–1913 (Cambridge, Mass., 1973).Google Scholar For a much earlier statement of the neoclassical approach, see Jervis, F., “The Handicap of Britain's Early Start,” Manchester School, Vol. XV, No. 1, (January, 1947), p. 212Google Scholar: “It is a commonplace of economic theory that the entrepreneur combines his factors in the optimum manner under the circumstances applicable to him.”

126 McCloskey, Economic Maturity, pp. vii – viii; see also the following statement in a piece extolling the recent work of “new” economic historians: “[F]ew economists outside of agricultural economics and economic history have given serious attention to measuring (as distinct from theorizing about) managerial ability or, in more elaborate language, entrepreneurship,” McCloskey, D., “Does the past have useful economics?” Journal of Economic Literature, Vol. XIV, No. 2, (June 1976), p. 452.Google Scholar

127 See Landes, D., The Unbound Prometheus (Cambridge, England, 1967), p. 354Google Scholar; Landes, D., “Factor Costs and Demand: Determinants of Economic Growth,” Business History, Vol. II, (January 1965), p. 26.Google Scholar

128 In McCloskey (ed.), Essays, pp. 272–277.

129 Chandler, Strategy; Chandler, Visible Hand. See also Dahmèn, E., Entrepreneurial Activity and the Development of Swedish Industry 1913–1934 (Homewood, 1970).Google Scholar On the conceptual distinction, see Schumpeter, J., “The Analysis of Economic Change,” Review of Economic Statistics, Vol. XVII, No. 4, (May 1935), pp. 2–10CrossRefGoogle Scholar, and “The Creative Response in Economic History,” Journal of Economic History, Vol. 7, No. 2 (November, 1947), pp. 149–159, both reprinted in Clemence, R. (ed.), Essays of J.A. Schumpeter (Cambridge, Mass., 1951), pp. 1–19 and 216–226Google Scholar; Evans, G., “The Entrepreneur and Economic Theory: A Historical and Analytical Approach,” American Economic Review, Vol. XXXIX, No. 3, (May 1949), pp. 336–355Google Scholar; Evans, G., “Business Entrepreneurs: Their Major Functions and Related Tenets,” Journal of Economic History, Vol. XIX, No. 2 (June 1959), pp. 250–270CrossRefGoogle Scholar; Cole, A., Business Enterprise in its Social Setting (Cambridge. Mass., 1971)Google Scholar; Chandler, A. and Redlich, F., “Recent Developments in American Business Administration and Their Conceptualization,” Weltwirtschaftliches Archiv, No. 86, (1961), pp. 103 – 130Google Scholar; Hartmann, H., “Managers and Entrepreneurs: A Useful Distinction?” Administrative Science Quarterly, Vol. 3, (1958–59), pp. 429–45CrossRefGoogle Scholar; Baumol, W., “Entrepreneur in Economic Theory,” American Economic Review, Vol. LVIII, No. 2, (May 1968), pp. 64–71Google Scholar; Soltow, J., “The Entrepreneur in Economic History,” American Economic Review, Vol. LVIII, No. 2. (May 1968), pp. 84–92.Google Scholar

130 In some quarters, however, there is genuine confusion concerning the theoretical issues involved. For example, Peter Payne. in his recent contribution to the Cambridge Economic History of Europe, is careful to make a distinction between entrepreneurs who make strategic decisions and managers who keep the concern running. Yet after discussing the empirical contributions of the “new” economic historians he concludes that the hypothesis of entrepreneurial failure has taken “quite a beating.” Payne, P., “Industrial Entrepreneurship and management in Great Britain,” in Mathias, P. and Postan, M. (eds.), The Cambridge Economic History of Europe, Vol. VII, Part I, (Cambridge, England, 1978). pp. 180–181, 208–209.CrossRefGoogle Scholar Similarly, Nathaniel Leff notes that “in recent years the term entrepreneurship has sometimes been used as a synonym for the firm, or for management in general, with little regard for special ‘entrepreneurial’ qualities,” but he then goes on to accept the McCloskey-Sandberg argument that entrepreneurial performance was not an important problem in the relative decline of the British economy. Leff, N., “Entrepreneurship and Economic Development: The Problem Revisited,” Journal of Economic Literature, Vol. XVII, (March 1979), pp. 47, 50–51.Google Scholar A recent discussion of British entrepreneurial activity that well reflects this confusion can be found in the opening chapter of Kirby, M.W., The Decline of British Economic Power since 1870 (London. 1981).Google Scholar